Category Archives: SUPPLIER MANAGEMENT

Supplier Relationship Assessment

MySourcingLeader.com brings you a tool for assessment of supplier relationship types, called ASRT – Assessment of Supplier Relationship Types. You may use the tool on all your suppliers, assessing appropriate relationship type for each. The assessment tool can be applied on a limited number of key suppliers (i.e. your top 10), in order to determine the absolute top 1-2 suppliers with whom you will embark on an SRM program journey together – read all about this in the SRM 4-Step Process.

Managing suppliers is part of your job as buying manager, and you might be not quite sure what you should do with each different one. You also don’t have enough time to manage relationships with all of them. So, how can you find out which suppliers to devote more time to, to get best results? Make sure you bet on the right horses – use the ASRT tool. The tool is Excel-based, and the summary sheet is shown in below image:

Supplier Assessment Summary 2

The summary sheet displays the results from the assessment and input done by the responsible buyer. There are totally 10 criteria, or evaluation parameters, building on the MOISTER tool that is explained in the SRM 4-Step Process. Five of the criteria are grouped as “Business Value Criteria”, and the other five under “Mutual Match Criteria”. The two groups form the X- and Y-axis in the chart above.

The ASRT-tool will automatically calculate all the input values and display recommended relationship type with the assessed supplier! Accordingly, you have now done your assessment of the supplier relationship. By applying the tool on all your suppliers, you are coming through the entire supplier segmentation (phase 1 in the SRM 4-Step Process), and you may swiftly proceed with formulation of your supplier strategy and start planning and executing your sourcing activities together with your suppliers.

Below is an example of assessment of one criteria , Supplier View of Buying Company, that belongs to the “Mutual Match Criteria” (Y-axis). The question on the top shall be answered by giving a value between 1 to 5. Extensive supporting information for the analysis and scoring is provided below the question. There is one Excel work sheet for each criteria. Work yourself through the ten criteria, and your relationship assessment of the supplier is done.

Supplier Assessment Input 2

Expand your professional toolbox today with ASRT – Assessment of Supplier Relationship Types! The analysis supported by this Excel-tool provides a relevant, detailed and solid basis for your decision on supplier strategy.

pdficon_largeDownload in PDF-format a complete guide to the ASRT tool. Click here or on the pdf-icon.

Do you want the ASRT-tool in Excel-format, so you can start working with it? If so, contact us via email by using the EMAIL US form.

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Procurement in the future

 Trend toward more SRM

Procurement in Future

Research in the USA indicates that future trends relating to Purchasing and Supply Chain Management will include more focus on collaborative Supplier Relationship Management among other, such as:

  • An increase in the strategic importance of the Procurement function within companies
  • Leading organizations will establish strategic purchasing competence centers with highly trained, cross-functional personnel responsible for achieving competitive advantage in collaboration with their chosen supply chain partners
  • Tactical purchasing activities, such as ordering in expediting, will increasingly be automated and selected low-value, non-critical, standard commodity purchases are likely to be outsourced to full-service providers
  • Strategic alliances with suppliers will increase
  • Organizations in the same supply chain will increasingly share resources, including intellectual properties information, people and other assets
  • Global supplier development will be critical to global penetration
  • There will be an increasing emphasis on win-win negotiation
  • While the price paid will be an important measure of purchasing performance, this will be considered as part of the overall contribution of PSM to profit
  • Environmental factors will become increasingly important to purchasing considerations
  • The Internet will be the main vehicle for electronic purchasing, which increasingly will be used for purchasing transactions and also be the key to globalization
  • Personnel employed in PSM will require a higher level of training, including that in leadership and influence skills

Source: Purchasing and Supply Chain Management, Lysons and Farrington (2006)

 

Increasing need for two-brains buyers

Two-brain buyer

Integrating right-brain talent is imperative for winning procurement teams. Buying managers need to develop SRM skillsets beyond traditional procurement skills, in order to: 

  • engage on supplier energy
  • lead cross-functional teams
  • embed communication and change management into the process
  • deeper and more durable value creation to identify new opportunities

Companies that take SRM seriously, determined to capture supplier value and build profitable relationships, must make sure having the right people on the right supplier relationships. The buying responsibility of the most strategic partner suppliers, cannot only be assigned to the most senior and mature buyers – the relationship managers for those critical suppliers need to be equipped with strong right-brain capacity.

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Supplier Development Plan

We share with you here a very useful example on a Supplier Development Plan. The document is done in MS Powerpoint format, with some embedded tables created in Excel. You will; need to read the presentation in the SRM 4-Step Process in order to understand all aspects of this particular SRM program documentation.

The Supplier Development Plan exemplified here consists of 9 Powerpoint slides:

  1. Supplier Passport – (or Supplier Profile) summarizing information of the supplier
  2. Agreed objectives – KPI targets and tracker
  3. Projects – list of agreed prioritized actions for business improvements, used as tracker
  4. Key Account Teams – overview of all resources involved in the relationship
  5. Contact Data – detailed information about all persons in the teams above
  6. Meeting Organizer – calendar with proactively agreed meetings and dates
  7. Agreed Conditions – special agreements beyond the legal contract
  8. Production Capabilities – detailed overview of the supplier’s capacities and competencies
  9. Objectives of the SRM program – optional appendix (careful sharing with supplier)

It’s up to you to add more pages or use less than in the example. You may also consider to use another format for your SRM program documentation, using MS Word, please see Supplier Business Plan – Example here.

pdficon_largeDownload the Supplier Development Plan in PDF-format (click on the icon to the left).

 

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Supplier Pool Matrix

Editor’s note:

I built the Supplier Pool Matrix as a practical tool when just starting a new assignment as regional category manager. I needed to understand the current supplier situation and to establish a plan for spend concentration and SRM programs aligned with the company’s business needs. Moreover, as a regional procurement team, we needed to have one agenda driving in same direction without colliding initiatives concerning the supplier strategy. At a first glance, the Supplier Pool Matrix looks like a simple table only with some supplier names stated. It’s so much more than that! In fact, this little table became the most important document and working tool in the entire procurement category team. Read more, and you will understand why.

Make your own Supplier Pool Matrix. Look at the illustration below, and simply follow the guide.

Supplier Pool Matrix 2

Decide on your specific X- and Y-axes

The first thing you need to do is to divide your category (spend scope) into relevant “spend pockets”. In above example, the X-axis is sub-categories (i.e. applications, technologies, industries) ) and the Y-axis geographical clusters (i.e. countries, group of countries, regions). A certain sub-category and a specific geographical cluster becomes a “spend pocket”. Each spend pocket will have its own pool of suppliers, hence the name “Supplier Pool Matrix”. You will need to spend a good amount of thinking power before deciding on your X- and Y-axes, as your entire sourcing strategy and supplier management activities will be organized based on the structure of the Supplier Pool Matrix.

Populate the table with your supplier data

Insert all suppliers in your category (spend scope) in the table, using MS Excel. After each supplier name, state the annual spend with the supplier (i.e. the spend value with the supplier within the specific spend pocket) as well as the relationship type. The sum of the spend of all suppliers should correspond to your total spend value of the sub-category in the geographical cluster. Are you not familiar with the relationship types? You may learn all about supplier relationship types in the SRM 4-Step Process. Structure the suppliers within each spend pocket with the most preferred suppliers of that spend pocket on the top and the least preferred suppliers in the bottom.

The key supplier(s) on the top of each spend pocket (normally with growing spend) are marked green, while suppliers subject to upcoming discontinuation are marked red. The suppliers with white background, or in the middle of the supplier pool, are not fully defined. Their destiny may be decided by next RFQ/bidding, becoming either green or red, or remaining white and in the middle. This color coding makes the Supplier Pool Matrix a very powerful internal communication tool – going forward it becomes crystal clear what suppliers are selected as preferred/growing and what suppliers are in exit plan.

The Supplier Pool Matrix needs to be updated – and COMMUNICATED – regularly, and immediately after RFQ’s when business allocations to suppliers are agreed and internally approved.

Use the Supplier Pool Matrix as Risk Assessment Tool

Risk assessments can be done in many different ways. The Supplier Pool Matrix is quite a good tool for assessing supply risks, when used supplementary to more detailed risk evaluation methods. Note the vertical bars in green/red/amber color on the right side of each spend pocket. You simply evaluate the supply risk by considering the amount of players in the supplier pool, both incumbent and potential suppliers. Also the magnitude of the  impact for the business from an eventual supply disruption may be taken into consideration.

Red risk (level 3) means that qualification of new supply sources for a spend pocket will be included among your sourcing strategy actions. Green risk (level 1) tells you that the supply risk is very low. If the amount of incumbent suppliers is high there is an opportunity to reduce the suppliers in the supplier pool. Be strategic in your supplier reduction efforts (if that is a priority for your company), and reduce most suppliers in the green spend pockets, while being very careful in reducing suppliers in amber (level 2) spend pockets.

Analyze your supplier portfolio through the Supplier Pool Matrix

Have a closer look at the suppliers in the illustration. What does the category manager actually need to do in this case? What actions should be among the prioritized in the sourcing strategy plan?

  1. There are currently two Partner suppliers in the region, Deltacom and Giller. These suppliers are the most strategic suppliers for the buying company managed through SRM programs. Supplier Betos is a Collaborative supplier, supplying in several geographical clusters and being potential supplier in some spend pockets. Betos could be candidate for an enhanced relationship and SRM program, making three Partner suppliers totally in the spend scope
  2. Sub-category C is generally lacking supplier options. We need to understand the reasons for that. Could it be the product/service specifications in that sub-category that limits the choices on the supplier market? The category manager needs to deeply analyze this situation and eventually agree with R&D and Marketing to simplify the specifications. That will open the door for more suppliers to enter that sub-category
  3. Geographical cluster 4 has overall too many suppliers. Here is the largest opportunity for supplier reduction. A competitive bidding should be conducted, and business allocations given to fewer suppliers than today’s situation
  4. Despite the fact the Deltacom is a trusted Partner supplier, the category manager may need to build an alternative supplier for Sub-category B in Cluster 2 (sole supplier situation)
  5. In Cluster 5, something has gone wrong with supplier Lurcom. This was a key supplier until recently, and the category team has concluded that discontinuation of this supplier is the only way forward. As a result, swift qualification of alternative suppliers (i.e. potentially incumbent Regarded, Collaborative or Partner suppliers) is required for sub-categories B, C and E

Have you found any other relevant action needed, on top of the 5 above?

Well, that’s basically it about the Supplier Pool Matrix.

By doing above steps, you should by now have  a great tool to strategically track and manage your supplier portfolio. Please read as well the related post on Smart Supplier Database. Ensure that you keep your supplier strategy documentation well updated. Communicate it frequently and hammer your clear and winning messages  into the minds of your team members, collaborators and stakeholders.

pdficon_large Download the Supplier Pool Matrix in PDF-format here, with better visual quality than above image (click on the pdf icon).

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Smart Supplier Database

How do you keep track of your suppliers in a smart and efficient way?

Solution: Create a smart library with detailed information about your major suppliers, so-called “Supplier Passportsor “Supplier Profiles”, as well as a summary and comprehensive list of the most necessary information on each provider. Keep these together in one place, preferably on an intranet platform easy accessible for all co-workers who need the information.

Supplier Passport

Make an updated one-pager on each supplier. Should you have a very large number of suppliers, you may limit the Supplier Passports to cover the suppliers corresponding to 80% of the spend (the 80/20 rule), or to cover only Collaborative and Partner suppliers. A Supplier Passport (or Supplier Profile), could look like below example:

Supplier Passport

The Supplier Passport is a great way to keep updated key information on your suppliers, such as;

  • short company description (turnover, production sites, global HQ location, etc)
  • production capabilities (this could be very detailed with relevant capabilities list with checked tick boxes)
  • business with buying company (relationship since what year, mutual spend/turnover shares, contract details, payment- and inco terms, etc)
  • other (known) customers the supplier is serving, i.e. including competitors to the buying company
  • key account manager and contact information

Above is only examples what you may cover on the Supplier Passport one-pager. We call it “passport” as it should contain short and important information about the supplier that define the company making it a unique piece of information. Keep it updated at least once per year.

Depending on the complexity, it may seem like an exhausting task to create Supplier Passports for the suppliers in your spend scope or category. However, if you are a team, split the work among all buyers in the purchasing team. If you have an assigned “relationship manager” for each supplier, this is the person who should create the Supplier Passport for the supplier and keep it updated. Once created, the work on updating the one-pagers is a quick activity, and you will have a fantastic source of information on your suppliers. This one-slider is used in the Supplier Development Plan (as front page) with those suppliers with whom you will run collaborative and relationship enhancing SRM programs. Read more about that in the SRM 4-Step Process.

Supplier list with key information

Without a comprehensive list of your suppliers that contains key facts on each player, you will have endless work on gathering data for your own needs or to serve others in the company. Have ONE LIST, ensure it contains the information you (and your colleagues) need and update it regularly. This will bring order to your widespread data and save you time once you need it. Such supplier list may have following appearance:

Supplier List

You may find out from this list the following information on each supplier:

  • Size of the spend with the supplier
  • Share of category spend
  • Relationship type (read more about this in the SRM 4-Step Process)
  • Lead country (relevant if your spend scope is regional or global)
  • Contract expiry date
  • Agreed conditions, whatever is relevant for the buying company (for example annual price reductions or contractual clause on Value Creation or Continuous Improvements)
  • Payment terms, Incoterms
  • Lead contact – name of the buyer who is relationship manager for the supplier

Rather than having several supplier lists, our recommendation is to add relevant columns and stick to only one supplier list. You may work with this list to show your spend concentration plan, by for example highlighting the supplier name cells in different color (red for “exit planned”, green for “growing supplier”, and so on). Just be creative with this list and make it the one-and-only list of the suppliers in your spend scope. If you have different categories for all your suppliers, either insert a column stating “category”, or make different sections of the table that keep the suppliers in different categories separated from each other.

You may give your Smart Supplier Database a brand name of your choice that you sell in to colleagues and stakeholders. Refer to the supplier database by its given name with a link to where its accessible. Make people used to find it and capture the information they need by themselves. You will be perceived as a good house-keeper, and you will save time! You may also save money through a Smart Supplier Database. Agreed conditions with suppliers might get lost due to organizational changes or details of conditions in past agreements may simply be forgotten. By keeping details and key information included in the supplier list, you will manage your spend flawlessly without such human mistakes.

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Supplier Business Plan

Editor’s note:

This is an example of how you can make use of a business plan (or development plan) with your key suppliers. The business plan is created in MS Word and requires about three pages. Read more about supplier business plan in the SRM 4-Step Process

I have used this very format in my collaboration with several suppliers. The benefit of using Word-format is basically that you have all information collected in one place and it’s easily readable in one flow. It’s fast to update and makes a great tool for communication to internal stakeholders as well as to the persons closely involved in the SRM program with the supplier.

Content of page 1:

Time period covered (agreed) is stated in the headline and when the common document was latest updated. General information about the supplier and the company’s capabilities are followed by a list of persons from both companies who are extensively involved in the relationship. The page ends with a short update of the supplier’s industry situation. Image of page 1 below:

BPL1

Content of page 2:

List of key trends (technology/customer needs/etc) of the market that is relevant for both the supplier and the buying company. In relation to the industry situation and market trends, you should list the competitive advantages of the supplier. The analysis of the suppliers’ competitiveness goes deeper through the 6 competitive questions (invented by GE / Jack Welsh). Below each point, state 1-3 points. The idea is to consider these relevant points when setting the action plan that will make “your and your supplier’s common supply-chain more competitive, beating competing supply-chains” (i.e. be better than your competitors and their suppliers). Image of page 2 below:

BPL2

Content of page 3:

This page is the heart of the Business Plan, with a list of all KPI’s or Targets that are agreed between your buying company and the supplier. In this case, the plan reaches 3 years into the future, but you may choose another time horizon, for example 5 years, depending on your industry situation and business needs. The table is used as tracking tool and historical performance is stated (preferably compared to the agreed targets in order to see eventual gaps to targets). Please read the SRM 4-Step process  in order to learn more about target setting and measuring supplier performance. The most important part of the document is the Action Plan – here you list all activities and projects that are ongoing or should be implemented by the supplier (or executed jointly by the supplier and the buying company). The list of prioritized actions are used as tracker tool and should be updated and communicated after each business/projects review meeting. The last piece of the Business Plan is alignment with stakeholders and top management. Tick the boxes when you have got their acknowledgement of the documentation of the established SRM program. Image of page 3 below:

BPL3

pdficon_large  You may download the whole business plan in PDF-format (click on the icon to the left).

See also the Supplier Development Plan (SRM program documentation using Powerpoint format).

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SRM 4-Step Process

We bring you a practical guide on Supplier Relationship Management. In the end of this Post, you may download a free complete presentation of 53 slides (in pdf-format). Below is a summary of what you will find the presentation.

Definitions of SRM and benefits

Before we start exploring the details of the work with supplier relationship management, we need to understand what “SRM” really is and what “SRM partnership” means (or so called SRM programs).

Supplier Relationship Management (SRM) is the entire analysis- and work process on segmentation and management of suppliers as an integral part of the sourcing strategy, optimizing way of interaction and collaboration with each supplier in accordance with specific business needs and desired value.”

SRM partnership (or SRM program) is the most advanced type of supplier relationship, with developing two-way, mutually beneficial relationships with those suppliers that are most vital to the buying company to maximize value and deliver greater levels of trust, innovation, and competitive advantage.”

Why do we need to enhance supplier relationships through SRM programs and what do we want to get out from such different way of collaboration with suppliers? Here are some common reasons:

  • Deliver a lasting legacy of value creation and capture unique advantages
  • Streamline communication, build trust, and secure mutual profitable growth
  • Improved utilization of complementary resources (the Company/Suppliers), focus on fewer and better strategic relationships
  • Build trust and implement a common operating framework for all development work and interactions with core suppliers
  • Become Costumer of Choice – and first to be served – for suppliers and vice versa

With above understanding of the terminology and why your company needs SRM, let’s move on the the SRM work process as such.

The SRM 4-Step Process

SRM 4-Step Process Image

The SRM process is an iterative process consisting of four major blocks; Segmentation, Objectives, Activities, and Evaluation. Each step is thoroughly explain in the presentation, with plenty of advices and cases from the real business world. SRM is an integral part of the Sourcing Strategy process (illustrated below).

Segmentation in sourcing strategy

If you are executing  a strategy (step 3) and have not done appropriate segmentation, you will need to go back to step 1 and do the complete supplier segmentation and adjust your strategy and set of actions. Assessing suppliers and determine appropriate relationship management is part of the initial homework for buyers and buying managers (step 1). The objectives set together with suppliers shall contribute to and harmonize with your overall business- or procurement targets. The common agenda agreed with suppliers are part of the strategy creation (step 2). Running SRM programs and implementing projects (step 3) collaboratively with selected few suppliers that are vital to the business, are part of your sourcing road map activities that will deliver desired value to the business and achieve or exceed your procurement targets. The last step is about regular reviewing of supplier performance and as well internal evaluation if the SRM partnerships are delivering the planned and desired value to the buying company.

Segmentation Pyramid

We segment suppliers into four different classification – Transactional, Regarded, Collaborative, and Partner. In the presentation (download it below!)  there are checklists supporting your determination of right classification of your suppliers.  Overviews and examples on activities that you typically carry out with the differently segmented suppliers are as well included in the practical guide. You would normally do intensive SRM programs with Partner or Collaborative suppliers, while Regarded and Transactional suppliers are managed with less time and resources invested into the relationships.

MOISTER – tool for supplier assessment

MOISTER ImageWe have developed a model called MOISTER, that is an easy and straightforward tool for evaluating if suppliers fit and meet business needs. The tool is used when assessing the suppliers, trying to segment them and select the few that are most important for the business and that might be subject for SRM partnership. MOISTER makes a powerful visualization of your plan with each supplier and the analysis that justifies your proposal/decision. Check it out in the presentation!

In the “SRM 4-Step Process – a practical guide in getting the basics right in supplier relationship management” you will find many tools and examples applied in real business, like:

  • Supplier segmentation and decision on SRM partnerships
  • SRM program implementation plan for spend category
  • Checklist of supplier’s driving forces
  • Development Plan with Collaborative and Partner suppliers
  • Supplier profile, Project plan and tracker file
  • Integration of supplier relationship types into your strategic supplier database

Grab the opportunity equipping yourself with applicable skills and knowledge in SRM. Download it here in pdf-format (53 pages, 2.92MB):

pdficon_largeClick here or on the pdf-icon.

 

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