[Editor’s Note: Over the next few weeks on Payables Place, we’re publishing some “best of” 2019 articles as we reflect on the year and prepare for the new year ahead.]
Business pressures and needs have changed over the past five years such that product lifecycles are shorter and market swings are wider than ever before. The pace of business has increased to the point where many enterprises realize that they can no longer afford to go it alone. At the same time, Ardent Partners research has identified supplier collaboration as a top strategy, not only for Chief Procurement Officers, but also finance professionals, as they try to elevate their business to the next level of performance. Suppliers have their fingers on the pulse of innovation and market changes, and can be real assets in today’s hyper-kinetic business environment. But to fully harness the power of their suppliers, enterprise procurement and finance teams need to understand how to manage their suppliers. Below, are four supplier management best practices for today and beyond.
1. Supplier Identification
First, procurement teams need to find quality suppliers to work with that will bring them the best value. Here, we’re talking about the strategic sourcing process, which Ardent defines as “Leveraging process automation tools to quickly identify, evaluate, negotiate, implement, and adjust the optimal mix of goods and services that best support the constantly evolving objectives of the enterprise.” It starts with finding the right supplier or suppliers to partner with and help the enterprise source better – not necessarily source more.
As finance and procurement departments prepare for this new buyer-supplier partnership paradigm, they should view potential suppliers as a source of value and advantage, rather than mere transactional partners. Suppliers have rich market knowledge to share that an enterprise cannot possible capture by itself. That said, finance and procurement teams should conduct spend analysis to ensure that they’re using data-driven insight to select the highest value supplier for their sourcing needs.
2. Supplier Information Management
Having detailed, accurate, and centralized supplier information is a foundational part of managing relationships with suppliers – from product scoping to payment processing. This information can include quotes, contracts, contact details, locations, remittance information, payment details, certifications, performance ratings, risk scores, capabilities, and category coverage. Tactically, collecting, verifying, cleansing, and managing supplier information can drive significant cost and time savings. Strategically, supplier information management can driver greater collaboration and innovation with enterprise suppliers.
To elevate supplier relationships to a strategic level where they are true partners, finance and procurement teams should begin the “on-boarding” process from the start – at the bidding phase. This fosters greater supplier enablement and allows them to hit the ground running post award. Next, finance and procurement should centralize and standardize all of their supplier information and create a single “source of truth” that all stakeholders – internal and external – can reference moving forward. The “on-boarding” process should also include setting up suppliers for payment once the goods and services once have been received/performed. This should include how (ACH, Vcard, paper check, etc.) they want to get paid as well as when (do they prefer to take advantage of discounts and get paid early, get paid on time, etc.) they want to get paid. Lastly, organizations should leverage available third-party supplier information and integrate it with information culled internally from suppliers as well as from across the enterprise. This will create a more holistic view of suppliers and relationships.
3. Supply Risk Management
Globalization, not to mention the internet, have made the world a smaller place and connecting with new or emerging markets and suppliers easier and faster. But they’ve also exposed enterprises to newer forms of supply risk that seem to increase every year. As procurement’s role converges across the enterprise, more Chief Procurement Officers have become responsible for managing a changing and increasing number of global supply risks. Ardent Partners defines supply risk management as the program or series of strategies used to identify, define, quantify, mitigate and manage potential risks to supply and the resulting impact they can have upon the enterprise. These strategies will vary by enterprise, industry, or geography, but there are some general best practices to follow to manage – if not eliminate – supply risk.
The first is to assign a cross functional team to lead the supply risk program – one that leverages different expertise and experience so that enterprises have a wide variety of perspectives and resources to address unique risks. The second is to develop a robust supply risk identification and assessment process, including defining all relevant risks to the enterprise – whether they’re financial, operational, political, regulatory, reputational, etc. Third, supply risk programs should develop and test business continuity and crisis management processes to see how well they perform under different scenarios and adjust accordingly. Lastly, supply risk teams need to stay vigilant. Supply risk is a moving target that takes new forms every year. Successful supply risk management teams cannot and do not “set it and forget it.
4. Supplier Performance Management
Also referred to as SPM, supplier performance management allows organizations to rate and grade their suppliers along a series of performance metrics to ensure that their suppliers are providing value and adhering to contract terms and agreements. Those that use SPM processes and tools can develop supplier scorecards and surveys to track supplier performance, and collaborate with internal and external stakeholders to improve performance if/when needed. Effective supplier performance management and improvement can set suppliers up for future success and solidify their relationship with the enterprise.
Best SPM practices include clearly communicating with suppliers and all stakeholders what the evaluation process, criteria, and timing are so that no one is surprised and all parties can be proactive rather than reactive. Next, procurement should develop standard supplier surveys and scorecards that track performance and enable procurement to benchmark their suppliers. Finally, procurement should set alert triggers and implement “course correction” measures if/when their suppliers’ performance dips. Similar alerts and triggers should also be implemented to highlight changes in a suppliers’ financial measures. The sooner this occurs, the better and easier it will be to get ahead of any potential problems whether performance or financial in nature.
Summary
As needs change and business is required to do more with same or even less, it is incumbent on them to collaborate with more stakeholders to ensure optimal performance. Supplier are an integral part of every organization. Effective supplier management can be a rewarding and engaging process that leverages all stakeholders and takes a 360 degree view of the process. By considering each facet of supplier management – identification, information management, supply risk management, on-boarding, relationship and performance management – finance and procurement can ensure end-to-end success and drive greater value to their organizations.
[Editor’s Note: Today, supplier management has morphed from one where procurement was solely responsible for the relationship and management to one where finance and accounts payable are very much involved in the overall process. This article above was updated to reflect this transformation from a previous piece that Andrew Bartolini, Ardent’s Chief Research Officer wrote a couple of years ago.]
