Are suppliers giving your small organization limited service?

Post by Brian Seipel

I’ve worked with plenty of smaller organizations that have a shared concern when it comes to their supplier relationships:

We never get the time or attention that our larger competitors get.
All the “big names” get A-list resources, and we get stuck with the D-list.
We can’t compete on dollars spent, so our quality of service will always be lower.

I won’t lie and say bigger brands (and budgets) don’t get more attention. However, brushing the issue off by chalking it up to an uncontrollable external factor does your organization a disservice. In reality, bigger companies get better service for a single, controllable issue: they have effective Supplier Relationship Management (SRM) practices in-place, allowing them to better utilize the supplier relationships they maintain.

If you struggle to get the most out of your supplier relationships, consider how much effort you spend cultivating those relationships to begin with.

Redefining success

First, an organization’s supplier relationships are stronger when they have a better sense of their own long-term objectives. Start by considering how you define success. Procurement too often focuses only on a specific purchase event, which leads to defining “success” as bidders coming in at a lower-than-baseline cost. Some quality checks may be baked into an RFP, but few do justice to gauging long-term viability of a supplier. Many struggle to event validate a supplier’s ability to fit current state needs, and the majority fall woefully short of addressing future strategic plans.

Beyond price, what other clues can help us determine best-in-class providers? How can we quantify those things in our RFP to properly consider them during the event? After award, how can we hold suppliers to their commitments?

Note that this may require elevating Procurement’s role from a tactical position to a strategic one. We can’t concern ourselves with only immediate impacts like cost savings – we need to be concerned with where our organizations are headed and how well-equipped our suppliers are to get us there.

SRM program development

Next, successful organizations understand the risks they face intimately – and how a supplier could exacerbate or mitigate those risks. Conducting a supplier risk management exercise will help target aspects of supplier relationships that we must be concerned with beyond price. While not a comprehensive list, several common risks should be part of this evaluation:

• Financial – Do our suppliers have a solid financial/credit foundation to ensure continued operations?
• Compliance – Have our suppliers had any legal issues with relevant governing regulatory agencies?
• Reputational – Even beyond legal issues, do our supplier conduct any egregiously disreputable practices that could reflect poorly on us?
• InfoSec/Continuity – How stable and safe from attack are our suppliers’ technological infrastructures?
• Operational risk – Over the immediate term, do any of our suppliers’ processes introduce risk to our own day-to-day operations?
• Strategic risk – Over the longer term, do any of our suppliers’ plans for the future indicate a departure from our own organizational direction?

Finally, effective organizations make specific time for their relationships. The topics discussed earlier shouldn’t be brought up during regular weekly or monthly meetings – those sessions are better used to discuss tactical matters. Instead, establish a separate, strategy-level quarterly business review meetings. Likewise, move beyond the stakeholders involved in daily operations and have this meeting conducted by leadership in both organizations to ensure a 30 thousand foot view.

These meetings are an excellent chance to review aspects of the relationship that may not be visible from the boots-on-ground operational level. Beyond whether the supplier have delivered on-time and at the right quality – is the supplier organization moving in the same direction as your own org? Beyond delivering according to SOW, are there other strategic partnership opportunities to be pursued? Beyond MSA/SLA adherence, is the supplier doing more than just adding tactical value?

Supplier category caveats

As is likely clear, building an SRM program is a lot of work and not all supplier relationships require a heavy-handed SRM program.

Consider the types of suppliers you work with and break them down into groups:

• No SRM program requirements: Limited or one-off purchases where the relationship is too short to benefit.
• Limited requirements: Tactical, commodity purchases.
• Full requirements: Our strategic partners that have a large impact on organizational risks or opportunities.

You get out what you put in

As is likely clear by now, a good deal of thought and energy go into building an SRM program. Which is why too many smaller organizations fail to do so and are left wondering why their bigger competitors seem to have the cream of the crop when it comes to supplier resources.

Like all relationships, organizations get out of their suppliers what they put in. Investing time and attention into SRM is the most reliable way to improve the output of your most important suppliers.