Category Archives: Supplier Management

Purchasing’s Tips for Supplier Relationship Management

A recent article in Purchasing entitled “Supplier Relationship Management: Pathways to Convergence” offered up a few tips on Supplier Relationship Management, complete with case studies, that could be useful. The article, which notes that, At the heart of any good supplier-relationship management (SRM) process is a belief in exacting metrics, open communication and a laser-like focus on finding and nurturing suppliers who are willing and able to bring new technologies and other innovations that have a positive impact on the bottom line of both companies.

Tell Suppliers What You Expect : Pitney Bowes
“We’re like any technology company in recognizing that our suppliers and partners will play an increasingly more critical role in our business strategies,” says Michael Dempsey, Vice President of Global Direct Procurement.”SRM provides the enabling mechanism for selecting, developing and leveraging the supplier capabilities we need to deliver superior customer value today and, more important, tomorrow. It’s vital to our success.”

Pitney Bowes segments its supply base, forms relationships with the top level of management in the top 5% of its supply base, and holds formal periodic business reviews. This feedback allows Pitney Bowes and its suppliers to work together towards one common goal.

Suppliers must ‘enhance’ customers’ experience : Fedex Express
Fedex Express in Memphis, Tenn. “depends on our suppliers to provide products, services or solutions to us that enhance our customers’ experience,” says Mary H. McDaniel, Vice President of Material and Corporate Sourcing. “Our customers depend on us to perform for them. We depend on our suppliers to perform for us.”

At Fedex, SRM is built into their four-step strategic sourcing process (assess, validate, source, manage), requirements are communicated to suppliers through Aeroxchange, and scorecards are used to track supplier performance. The results of the scorecard are used to develop action plans which are reviewed with suppliers during semi-annual meetings. In addition, the company holds a global supplier symposium every other year for its top 50 suppliers.

Suppliers should understand end customers’ needs Procter & Gamble
P&G uses a rigorous SRM methodology. “It starts with purchasing leadership involvement in relationships with strategic suppliers, and is focused on creating joint value for suppliers and our business,” says Mary E. Kostolansky, Director of Marketing Purchases at Procter & Gamble in Cincinnati. Furthermore, she states that “Our suppliers are an integral part of how we do business and we take a long-term view of these relationships to drive sustained results,” says Kostolansky. “We believe our suppliers can be a critical component in our ability to innovate and deliver sustainable value.”

P&G spends more time than ever ensuring suppliers understand retailer and end consumer needs and involves representatives of R&D, marketing, engineering, and other functions in the SRM process. Furthermore, P&G focusses on growing its business with top suppliers and on eliminating poor performers that are not adding value.

All-in-all, a good article on the basics. So heed the advice and don’t be in the 51% of Companies that Don’t Understand Risk.

Supplier Performance Management Webinar

Hopefully after reading yesterday’s post which pointed out that only 49% of organizations have bothered to implement a supplier performance measurement and risk management program, you’ll want to do something about it. If you do, you might want to take advantage of Procuri’s [acquired by Ariba, acquired by SAP] well-timed webinar on Jumpstarting a Supplier Performance Management Program. Moderated by Tim Minahan, editor of Supply Excellence [WayBackMachine], the featured speakers include Chris Herbtst, Supply Chain Program Manager of Constellation Brands, and Dawn Tiura, Partner at Denali Consulting.

According to the messaging, this webinar will cover:

  • How to organize for effective supplier performance management
  • The right supplier performance metrics for cross-company measurement
  • How to assess and select the right solutions to help your company achieve its supplier performance measurement and improvement goals
  • Sure-fire approaches to speed performance management program system deployment and adoption

All very important topics.

51% of Companies Don’t Understand (Supply Chain) Risk

Yesterday, Aberdeen released their latest supplier performance and risk management benchmark report, “Supply Risk Increasing While the Market Stands Still”, which found that although two thirds of the organizations surveyed expect supply risk too increase, only 49% of organizations have bothered to implement a supplier performance measurement and risk management program. That tells me that at least 51% of companies do not understand risk, for if they did, they would be doing something about it.

The study found that there is direct correlation between the length of time a supplier performance and risk management program has been in place, the percentage of the supply base measured, and the positive results enjoyed by the organization. Moreover, best-in-class companies, which (i) have had programs in place for at least three years, (ii) measure 51% or more of their supplier base, and (iii) engage in supplier performance management and risk management in the supply base 70% of the time achieve:

  • 92% effectiveness in product and service quality
  • 91% on-time-delivery
  • 87% price competitiveness
  • 85% service and performance capability

Best-In-Class companies surpass their peers in pretty much every way.

  • 43% have instituted cross-functional teams of key stakeholders
  • 68% have instituted a structured performance and risk management program
  • 55% more supplement basic tools with more complex financial risk mitigation strategies
  • 57% use supplier performance systems, 54% use supplier databases and rating systems, and 48% use supplier market research and intelligence

In addition to pointing out some key differentiators, the report also overviews a number of enablers that can help a company that wants to achieve best in class status. These include:

  • Supplier Scorecarding and Reporting
  • Automated Calculation of Key Supplier Performance Metrics
  • System Notification of Performance Issues & Disruption Events
  • Integration with Spend Analysis Tools
  • Reporting of Key Supplier Operational and/or Financial Risks
  • Web-Based Portal for Supplier Self-Registration & Information Maintenance
  • Hedging and Other Insurance Solutions

In addition, they point out the following strategies that can be leveraged for maximum advantage:

  • Re-organization of the supplier performance and risk management initiatives into cross-functional ownership mode among all key stakeholders
  • Re-alignment of focus on supplier performance risk management activities to address customer and regulatory pressures
  • Implementation of a supplier performance and risk management technology layer across all business processes
  • Supply base segmentation on key criteria such as spend concentration, number of available sources per commodity, etc.

This report is definitely worth a read – especially if only 49% of organizations are actively addressing risk.

Supplier Information Management with Aravo

Aravo is a provider of an on-demand Supplier Information Management solution based in San Francisco with the goal of enabling business to rapidly onramp all of their suppliers and corresponding information. During my last trip to San Francisco, I was fortunate enough to be able to sit down with them and talk about what makes their solution unique.

Aravo focuses on what they call the Supplier Information Lifecycle that starts with the initial engagement, proceeds through supplier selection, and continues through supplier relationship management. Aravo contends that most systems do a poor job of supplier information management and that good, centralized, supplier information management is essential
to process efficiency, error prevention, rapid supplier on-boarding, compliance, and good, actionable decision support. For the most part, I have to agree.

I’m a big believer in Supplier Relationship Management, since I believe this is the foundation for innovation, performance, and risk management. Furthermore, when you get right down to it, you can’t have good SRM if you don’t know your supplier – and that involves knowing who they are, where they are, what they do, who to contact when things go wrong, what their financials are, etc., etc., etc. To do this effectively requires good centralized data management. Furthermore, without good, centralized data management, each individual in your organization who requires such data will have to spend time searching for it when she needs it, and updating it in her own applications when she finds it is out of date, leading to a lot of lost productivity over the course of a year when you add up how much time people spend just searching for and updating supplier information.

This is where Aravo’s solution comes in. They have a suite of tools that supports a slew of data formats and a suite of tools that supports a slew of common ERP, eSourcing, and eProcurement applications. Furthermore, their J2EE-based web-services stack makes it easy for them to integrate many different systems that use many different data formats. This allows them to do true integration of all of your supplier data – and do it across your enterprise. They can suck it in from each and every system you use, and when it is updated, push it back. Furthermore, not only can everyone in your organization use the same supplier information system, but each individual can choose to retrieve just the data that they need when they need it.

Aravo also has a few other advantages compared to other supplier enablement solutions. Recognizing that every supplier has different levels of e-competency and that every buyer has differing levels of supplier information needs, Aravo has invested time in developing multiple supplier views, each with different levels of detail. Furthermore, recognizing that some buyers might prefer to have third parties manage their supplier on-boarding and data maintenance issues, the system also permits definition of third parties with different levels of data management permissions. Finally, they support role-based dashboards that allow each user to keep track of their enablement projects and determine how many suppliers are in the system, how many suppliers have their information up-to-date, and how many more suppliers need to be enabled.

MFG: A Community in the Making

After completing my whirlwind tours of Boston and North Dallas (more to come), I started my virtual whirlwind tour of Atlanta (since I couldn’t find three consecutive dates that coincided with the availability of everyone I wanted to meet with), and the first call on that tour was Mitch Free of MFG.com. For you loyal SpendMatters readers, you’ll probably recognize the name from Jason’s post “Going Global With a Unique Leader”* back in September where Jason noted that even though he had some questions about whether MFG.com should serve as a stand-alone direct materials sourcing application for organizations, he had no doubt that the model is creating tremendous value and is resonating in the manufacturing world by taking supplier search capabilities to the next level, offering a true “parts marketplace” approach that is free to buyers.

Well, I have the same questions as Jason, but after diving in to understand what MFG.com really was about, I arrive at the same conclusions – it has tremendous value and should be part of the toolkit of every engineer and procurement professional at any company that needs custom manufactured parts and products. And it’s not just because of the large supplier base (after all, a number of marketplaces, such as Sorcity, have that), the free built-in sourcing tool (after all, why not WhyAbe from SourceOne [acquired by Corcentric]) the fact that you don’t just get suppliers who make that type of parts but vetted suppliers (located in real-time) who have made similar parts (in similar price brackets), or the fact that you can access ratings for each supplier with respect to their prior performance with other buyers … it’s because MFG.com is taking marketplaces to the next level – the Collaborative Community.

First of all, with MFG.com’s real-time supplier matching capability, based on detailed part specifications, you can find prospective suppliers during the design stages through an RFI. Once you’ve found the right supplier, you can collaborate with them on the design, and as Apriori has taught us, the best way to get an affordable part is to design it affordably. Secondly, you can use their platform as an on-line collaboration enabler and use it to communicate revisions as well as begin and end the sourcing process. Thirdly, MFG.com, even though it’s been around for a while and has a large global presence (especially in China), is just getting started. Although I can’t say much yet, expect MFG.com to start introducing some new community features over the next year or so that should provide the sourcing community with an offering that would finally give the B2B community the power that the B2C community has enjoyed for years with offerings like eBay and Craigslist (but these applications will be finely tuned to the needs of the manufacturing B2B community).

So instead of taking the sourcing interstate to your next destination, pull off onto good old Route 66, make a pit stop on MFG.com, and stay a while. You might find that the old model is new again and that the best value you can get for your time and money is right there waiting to be discovered. Don’t just drive by – take it for a test drive. Otherwise, you’ll miss a treasure just waiting to be discovered.