A Quick Guide To Supplier Management
The role of supplier management is not just the ability to meet them regularly to listen to the salesman tell you how good they are and what additional products and services you should buy from them. With four easy steps you can be managing your suppliers and identifying savings opportunities in no time.
Who are your Suppliers
How many suppliers does your organisation have? Most organisations will look to their accounts system to provide a breakdown of historic spend per supplier and year to date information.
Now are you able to distinguish between categories? A supplier may just supply HR consultancy but what if they provide IT contractors as well? You can probably set the supplier as supporting a specific department based on who paid the invoice.
So how many suppliers does your department have? I bet most of you will say you have less than 100 but what about the suppliers that are paid by credit card or that specialist scanner that only supplier x can maintain? From experience even well managed departments have at least double what you thought and in some companies the number of suppliers can easily run into the thousands for an IT department.
Does this matter I hear you ask and the simple answer is yes. If you do not know your supplier base, you can never hope to have a successful supplier management process and manage your budget effectively.
Understanding the Supplier “tail”
Once you have your list of suppliers and annual spend, sort them into descending spend order. You will see that at some point there is a sudden drop off in the annual spend with a number of suppliers showing a very small amount of spend, this is the tail. So what? Well, nothing if there are managed appropriately.
Once you have an idea on the size of your supplier tail, you need to review how you handle these suppliers and their necessity. A supplier may be needed to maintain the specialist scanner but you do not necessarily need to have a supplier review meeting with them every month. The less time spent managing the tail is time you can spend on more beneficial activities. A review of what these suppliers provide could reveal that a larger supplier can provide the same goods or services at much the same cost. Remember that contract negotiations, renewals, purchase orders and invoice processing all take time and therefore cost to produce each year, so should not be taken lightly.
Now you know your supplier base and the annual spend with them, you are a lot closer to effectively managing your suppliers. Next is understanding supplier risks. Reviewing this risk is not simply a matter of worrying about who you spend the most with. That specialist scanner may be the only way you can provide your services to your customers so what happens if the maintenance provider goes out of business tomorrow? You need to assess each supplier and give them a risk indicator (I use red, green and amber). As a minimum ask yourself:
- Can I buy the same goods from another supplier?
- If I have to change product, can I integrate it into our company quickly?
- How critical is the system or service to the daily running of the company?
From the answers to the above you can very quickly rate your supplier risk and therefore indicate which suppliers you should be worries about and manage them appropriately.
Understand your Suppliers
Now we know who are our suppliers, how much we spend and their risk level to the ongoing success of your company, we need to understand what the supplier brings to the table and what additional services they can provide.
How many of your account managers, especially those with high spend or risk, have you not seen since the contract was signed? It is important to have regular contact to ensure that both sides know what is happening and address any changes or issues accordingly. It could be OK to not speak for months when all is going well but what if things are not going so well? In extreme cases I have been known to insist on weekly meetings with the account manager to sort out failing relationships, it is amazing how quickly things can be corrected when they are forced to explain why something has not been done every week. It also works the other way and “issues” suddenly disappear when someone in your company realises that they cannot just get rid of the supplier and bring their preferred supplier in.
These regular meetings can also be used to assess a supplier’s ability to help in areas you may not have thought of. Tell your suppliers what your company is planning to do (as long as you are comfortable on confidentiality) as sometimes the best solutions come from the least likely sources.
You should also be looking at the financial stability of your suppliers. Don’t take the account managers word for granted as they may not know how stable their company really is. Invest in a company information solution such as Dunn & Bradstreet or Creditsafe UK so you can ensure that your suppliers are not in any financial trouble and able to fulfil your requirements with acceptable risk.
Not that you have the above information and supplier stability, you should quickly and easily realise where saving can be made in soft terms such as time saved managing suppliers, or hard terms where there are actuals monetary savings being made.
Of course Alternative Thinking can help in any of the above and it is surprising how quickly you can realise results. Working with your in-house teams or on our own results and savings opportunities could be seen in days.