Category Archives: Supplier Management

It’s Not Our Fault if Stupid Suppliers Bid Too Low But …

… it is our fault if we accept an unsustainable bid.

Over on Spend Matters UK, the public defender wrote a very thought-provoking post that asked is Procurement responsible if suppliers are stupid and bid too low?

And the doctor has to agree with the conclusion that we are not responsible for suppliers’ stupidity, only our own. And accepting any bid that is not sustainable is, generally speaking, a stupid decision, at least without a plan to make it sustainable.

In the doctor‘s view, it’s not good enough to just have contingency plans in place. If a supplier goes into bankruptcy, and publicly blames you for forcing them to accept an unsustainable contract that is bankrupting them and forcing them to lay off hundreds, or thousands, of workers, that’s not good PR. It could hurt your brand, your sales, and your chances of striking a good relationship with a new supplier who will be wary of the corporate [job] killer.

While it’s your job to find, and get, the deal that is too good to be true, you want to be sure that the deal doesn’t bankrupt the supplier, at least not until the contract runs out. So if you know the supplier will lose money as is, you need to figure out how to make sure that you figure out how to stem the bleeding sufficiently over time to prevent bankruptcy or failure.

For example, if you know, based on raw material price trends, the COGS for the product you are buying will be at least 5% more than what the vendor is quoting, have plans in place to reduce that cost as soon as the contract is signed. Either develop lean improvement plans to reduce all overheads cost as a temporary stop-gap, buy raw materials in volume on behalf of the entire supply base to lower cost, and start work on alternate designs that reduce high-cost raw material requirements if costs get too high.

If you plan ahead, you can be careful not to accept any bid that you cannot make sustainable for the supplier with at least one of the above plans. You don’t have to make the supplier profitable, although if you take the supplier beyond breakeven to profitability it may make you a customer of choice and that can have a number of benefits beyond just the unbelievably low bid you scored, but you have to be able to prevent the supplier from going bankrupt.

So don’t worry about supplier stupidity, just worry about not catching foolish fever. Then you can score big, and not suffer the fate that comes with failure in your supply chain.

Your Supply Base Is Too Big – But That Does Not Mean You Should Consolidate

You should right-size, but right-size doesn’t mean down-sizing the supply base like consultants in the 90′s used the term right-size when they wanted their customers to down-size their work-force. It means identifying the right number of suppliers for the category, and the right suppliers to fill those slots. If you are sole-sourcing or dual-sourcing a category, and the one or two suppliers are risky or in at-risk regions, you might need more.

The right number of suppliers is not a magic number, it’s the right number of suppliers you end up with after you have identified the right suppliers for each category. For a large organization, that has 60,000 suppliers, that’s probably a substantially smaller number (by a factor of 2 or 3), but it’s not consolidation and cutting across the board.

The reality is that most of the unnecessary supplier proliferation is in the tail spend, not the strategic spend that is analyzed every few years. There are a few extra suppliers in the strategic spend, particularly when organizational units or individual buyers go rogue and don’t buy off of contracted or preferred suppliers, but the majority of needless supplier sprawl is in the tail spend. (Where, as we noted earlier this week, you should be auto-buying.)

So how do you go about right-sizing? First of all, for each product or service in the tail spend, select preferred suppliers and make sure that they are only suppliers available in any and all solutions the buyers can use. Then, make sure that the organization puts in place a no PO, no pay policy and communicates that to all suppliers, and, in particular, the suppliers that are no longer preferred suppliers. This will minimize the suppliers who will respond, especially if the organization refuses to pay invoices that are unmatched to POs.

Then, use auto-class solutions on the transactions to try and identify products or services that could come from the same supplier and try to reduce the supply base further by eliminating those suppliers that can only supply one product or service when there are enough suppliers that can supply that product or service that can also supply other products and services.

And then stop there. While this won’t necessarily get down to the optimal number of suppliers, or ensure the optimal supplier is in each category, it will likely reduce the number of suppliers in the tail by a factor of 2 or 3 and make the tail a lot more manageable. And that’s what’s key – manageability, especially when you want your auto-buy to work quickly and efficiently and eventually consolidate enough volume that you can negotiate with the supplier in the future if you need to.

Tealbook … Not Just a Journal Anymore!

When you hear teal, you probably think of the colour which gets its name from the coloured area around the eyes of the common teal, and when you hear tealbook, you’re probably thinking of a notebook in the calming hue of teal, perfect for a journal or personal contact book … maybe even one you can keep your supplier contacts in!

But we all know the problems with a contact book. Contact information changes as people are shuffled around the company. Contacts leave the company, and you not only have to update their information but add a new contact. There is only a limited amount of room for notes. It’s really hard to share the information, and, if your peers are also using handwritten ‘teal journals’, get them to share the information, especially when you need it quickly.

That’s why supplier information management (SIM) modules and platforms were developed. All of the supplier and contact information in one place, accessible to, and updatable by, anyone in the organization. Plus, anyone can search the supplier database for suppliers new to them … but not new to the organization. This was one major limitation. Another was lack of community intelligence from peers. Were they selected or known for certain capabilities, or not? Do they have other customers for a product or service who will serve as references? Are they (now) capable of satisfying a minority designation or certification requirement (in a certain geography)? You can ask this, update the system to track it, but a community keeps this information up to date.

But most importantly, with traditional Supplier Information Management (SIM), you know what you know and you don’t know what you don’t know. You have no way of determining how many potential suppliers you don’t know about for any given category or requirement. Or how good the suppliers are for your needs relative to the suppliers you don’t know about.

That’s where a modern Supplier Information Management with Supplier Discovery platform comes into play. A modern supplier discovery platform, which is more than just a supplier network — as a supplier network is nothing more than a database of suppliers that have been transacted with through a particular platform, allows a community of organizations to keep track of, and provide information and recommendations on, potential suppliers (whether transacted through a platform or not); potential suppliers to self-identify and provide relevant information up front (such as diversity status and certifications); and all parties to share information of potential relevance.

tealbook‘s vision is to create a shared, trusted, supplier base with 100M suppliers that provides a central repository of reliable supplier intelligence that can be used as a stand-alone platform or integrated with your current ERP, sourcing, procurement, contract management, and other spend management systems of relevance through an easy to use API and an interface that is configurable to your organization’s processes and privacy preferences. tealbook already includes 1M vetted, and de-duplicated, suppliers with rich insights and expects to grow daily at an exponential rate to reach 4 million within 12 months.

And while this three-year-old start-up doesn’t have the 100M supplier database yet, they have the solid foundations for a reliable, scalable, extensible, and integratable community supplier intelligence platform that can be configured to your organization’s needs. That is getting the attention of some of the biggest organizations and consultancies in North America.

In the tealbook platform, a user can easily do a search for potential suppliers, review verified supplier profiles, review community generated expertise tags (similar to individual specialty tags on Linkedin), review provided supplier content, create a supplier list for vetting, interact with the supplier to get more information, interact with her teammates for initial vetting and review, and then select a subset of those suppliers for export for consideration in her sourcing/procurement project. And she can do it through the web platform, or the mobile app if she is documenting new potential suppliers at trade shows. Plus the database of connections and employees is always up to date, so she knows who to contact, and who she knows, or knows of, at the potential supplier.

Supplier Discovery (incumbent or new) can be quite time consuming without such a platform. Most organizations would resort to searching online databases, getting recommendations from professional societies, going to events to get information from peers, and so on. Discovery can take weeks on its own when a proper platform with a community built and maintained platform can knock that down to hours. And the information is a lot more reliable than that obtained from a single source. This reduces the time, effort, and risk to discover, pre-vet, and qualify new suppliers substantially — which makes for an improved sourcing and procurement process.

And the search in the tealbook platform is quite powerful — it’s not just keyword, industry, tag — it’s also specific to your data and connections — it’s semantic and it uses machine learning to increasingly improve the relevance of supplier recommendations. And that’s key to identifying the right suppliers for you. And it’s a great choice even if your platform has a basic SIM module. For example, tealbook complements newer sourcing platforms such as ScoutRFP (and eliminates the need for a supplier network entirely), Coupa customers can add on tealbook to fill in the holes in the Coupa S2P platform, and Ariba customers are, as you may have guessed from above, finding it provides that missing piece: mobile, user friendly and socially derived supplier intelligence. With tealbook, they are finally able to rapidly and easily look up updated supplier data, identify and qualify known or new suppliers without going through an extensive process before initiating a sourcing event in Ariba.

In other words, if you are looking to know more about suppliers who have already transacted with your company or regularly need to discover new suppliers (including increasing access to innovative and diversity suppliers) check out tealbook. It might be the platform for you.

To Get the Best Supply Base, Go Beyond the Obvious!

the doctor recently came across an article that said that during the sourcing process, there are many qualitative attributes that procurement teams should take into consideration and that sourcing is about the lowest price, but identifying the greatest value for your sourcing dollars and that one should incorporate multi-factor award criteria into an automated sourcing process. All true. It also provided some examples of the most frequently used qualitative factors, which include:

  • Supplier Market Share
  • Supplier Performance
  • Production & Delivery Capabilities

And these are okay, but they don’t tell the whole story. Plus, sometimes the story they tell is not the right one. For example:

  • with respect to supplier market share, you only care that the market share is big enough to make the supplier financially viable … sometimes the emerging suppliers have the best technologies for you
  • with respect to supplier performance, if you haven’t used the supplier before, and the only data you have is negative data from customers that have gone public, you don’t know if this is the typical experience or an anomaly (like 1 out of 100) and sometimes even how recent the data is
  • with respect to production and delivery capabilities, there’s always a third party partner for delivery

That’s why you need to round out the supplier evaluation components, going beyond the typical, and obvious, evaluation factors, if you want to find the best suppliers for now and the future. Some other factors to consider are:

  • Innovation Capability do they have a track record for innovation and helping customers improve their designs, robustness, product longevity, etc.
  • Corporate Social Responsibility the best supplier from a product perspective could be the worst supplier from a corporate perspective if that supplier uses child labour in the supply chain or buys blood diamonds for their x-ray machines and the story breaks
  • Environmental Risk Profile that examines the supplier from a geo-location, social and political, and economic context which are out of the control of the supplier (whose financial, technological, performance, etc. risk you will be qualifying separately)

And these are valid for all suppliers. When you get into specific categories, you might also want to consider:

  • Services Capability can they support the product, offer consulting services around the product, or streamline the production process beyond other suppliers
  • Six Sigma Black Belt can the supplier help you with your design process or streamline your new product development
  • Supplier’s Supply Chain Design
    is their supply chain more efficient than their peers?

So if you want the best supplier, go beyond the obvious in evaluation.

The More Things Change … Supplier Intelligence

This week we’re revisiting posts from ten years ago to demonstrate that, to date, the more things change in Procurement, the more they have, unfortunately, stayed essentially the same.

Ten years ago we published a post on what you can’t afford not to know about your suppliers that summarized some key insights from Jim Lawton (who was VP of Marketing at Open Ratings until its acquisition by D&B, where he became SVP and General Manager of Supply Management Solutions).

Jim, who noted that global supplier insight can become as indispensable to sourcing and supply management as a stage is to an actor, also noted that in order to acquire this insight, an organization has to focus on:

  • supplier performance and quality management,
  • supply risk management, and
  • supplier content and connectivity

And nothing has changed. Any organization that wants to understand total landed cost from global markets and with predictability still needs these capabilities today. Considering that the the final cost of any purchased product is ultimately dependent on the supplier and its ability to delivery a product to spec on time and on budget with minimal defects, supplier performance management is as critical today as it was a decade ago.

Similarly, considering that a single disruption can wipe out the entire identified and negotiated savings on a category (as the result of a six week disruption), supply risk management still takes center stage. (This goes double when the chance of an organization not experience a disruption is 15% or less for any 12 month period.)

Finally, without an understanding of supplier policies, practices, and the providers your suppliers employ, you’ll never know whether or not they are adhering to your corporate social responsibility standards, whether or not they are implementing six sigma and other best practices to ensure quality and keep defects down, and whether or not they are buying from, or subcontracting component development to, third parties that don’t adhere to your quality, responsibility, or ethical standards.

Supplier Intelligence is as important now as it was then, and, most importantly, many organizations don’t have the depth of intelligence they should have, as evidenced on the relative lack of uptake of modern Supplier Relationship Management solutions.