March 2, 2017

How Do You Organize and Optimize Supplier Relationships Across the Enterprise?

Most organizations rely on a multitude of suppliers to assist it in the daily operations.  Supplier managers can benefit from a thoughtful categorization of suppliers to evaluate and benchmark suppliers.  If you’re building out a vendor management operation and have not yet thought about the best way to organize your suppliers here is an approach to consider

In most organizations, the typical categorization falls into five core supplier markets.  These are as follows:

  1. Finance and Administration
  2. Human Resources
  3. Information Technology
  4. Sales and Marketing
  5. Supply Chain Operations

 

Next, you will want to think about the sub-markets that serve within each of these core supplier markets.  Below are a few examples within each.

Finance and Administration

  • Accounting
  • Capital Planning
  • Credit and Collections
  • General and Administrative
  • Legal
  • Tax Compliance
  • Travel Management
  • Treasury Cash Management

 

Human Resources

  • Benefits Administration
  • Learning and Development
  • HR Laws and Compliance
  • Process Payroll
  • Recruiting and Staffing
  • Talent Management

 

Information Technology

  • Hardware
  • IT Support
  • Networking
  • Security
  • Software
  • Telephony

 

Sales & Marketing / CRM

  • Client Success
  • Client Support
  • Digital Marketing
  • Direct Marketing
  • Field Sales
  • Inside Sales

 

Supply Chain / Operations

  • Inventory Management
  • Logistics
  • Manufacturing
  • Procurement
  • Product Development
  • Sourcing
  • Warehousing and Fulfillment

 

Once the above market classification scheme is created you can then begin to assign suppliers to one or more of the core markets and sub-markets.  For example, a supplier that is used for automating direct marketing messages to prospective clients may be under both Information Technology- Software and Sales&Marketing-Direct Marketing.  You can also assign it to only one category based on the team most directly responsible for management of the supplier.

The benefit of a market-based approach to organizing suppliers is that the groups will better allow for comparisons within them.  So if I am reviewing my IT hardware vendors I can see their information as a group but compare the group to individual vendors in the group to easily call out the leading and lagging suppliers.

Once you’ve organized your suppliers in their logical supplier markets you’ll want to think about the appropriate process and performance models for your vendor management function.  First let’s discuss process.

  • Document Management – A process whereby vendor managers can tag documents into logical classifications for easy reference (ex. meeting notes, security certificates, NDAs); you’ll also want a workflow to happen when there are date-sensitive documents to prevent issues of non-compliance.
  • Contract Management – A process whereby vendor managers tag elements in the contract to monitor for compliance during the lifecycle of the contract.  Examples may include tags for background checks or certificates of insurance or security attestations.  Like documents, you’ll want to initiate workflows when contracts are up for renewal and you’ll want to audit for contract elements that are in and out of compliance.
  • Contact Management- A process whereby vendor managers can assign roles to specific individuals within their organization and the supplier organization to easily locate the right people when needed.  Keep in mind a job title may not reflect the role a person has in a supplier relationship.
  • Spend Management – A process whereby vendor managers view actual to budget spend and break it down by cost center while comparing it against total cost center spend to identify whether a specific supplier is an outlier on spend management.

The above processes can be tedious so attempt to leverage technology to automate the tactical details.

Finally, a vendor management operation will want to have a sound data model for evaluating supplier performance.  We suggest the following, based upon reviews of hundreds of organizations supplier scorecards.

  • Performance data  – This is operational data that you can compare actual performance vs. a goal on a monthly or quarterly basis.  The most common categories here would be cost, innovation, quality, and delivery.  In the delivery category you may be measuring percent of on-time deliveries each month and comparing those to a minimum level of acceptable performance.
  • Experience data- This is softer, relationship data that is more of a leading indicator of future operational performance that tends to be lagging data.
  • Reputation data – This is marketplace sentiment from new and social media. It can help keep you current on what others are saying about the supplier in the market.
  • Risk data – This is data that scores the supplier on various elements of risk such as IT risk, financial risk, process risk etc.

Ensuring you have a good data model that is complete but flexible to incorporate the unique elements of each supplier market is important.  The above data model can do that.

Ultimately organizing suppliers across an enterprise is your first step to managing suppliers so you can get more out of them.  Evolving to rigor in the process and performance management will make your vendor management operation a strategic vs. tactical process and one that can return 10% or more in hard dollar value savings from suppliers while also returning intangible value such as increased supplier collaboration, innovation and flexibility.

For more information on how we can help you with your supplier management needs, contact us at info@clientloyalty.com

About Us: ClientLoyalty is a supplier performance management software company. We go beyond traditional scorecards to drive more value from supplier relationships. ClientLoyalty centralizes and shares critical performance data while automating and simplifying vendor processes to transform a reactive, tactical exercise into a persistent, strategic process.  Learn more by visiting www.clientloyalty.com

 

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