Category Archives: Supplier Management

Provider Damnation 67: Tier 2

Suppliers. You can’t always deal with them, but you cannot survive without them. The same goes for your Tier 1 suppliers. They can’t always deal with their suppliers, but they cannot survive without them. Your suppliers don’t have a magic replicator that your products just materialize out of. They have to manufacture these products from components and raw materials that come from their suppliers. And their suppliers are their problem, right? Wrong.

If Tier 2 Suppliers are late with shipments to your Tier 1 suppliers, you don’t get your product on time.

And, most importantly, while you might get some insight from your tier 1 supplier that a shipment they were expecting is late (and your shipment is going to be late) if you have a great, and very well managed, supplier relationship, you’re never going to get insight from a tier 2 supplier that a shipment is (going to be) late (because there was a delay in their raw material shipment or a production line broke down).

If your Tier 2 Suppliers ship sub-standard materials, your Tier 1 supplier ships sub-standard products.

And there’s no guarantee that your tier 1 suppliers are going to notice that the grade 5 bolts for the transport vehicles were only grade 4, that the dysprosium foil supposed to be 99.99% pure is only 99%, or that the milk powder isn’t tainted by melamine powder to bulk up the weight.

If your Tier 2 Suppliers use forced labour, you get brought up on criminal charges under the emerging anti-trafficking acts and modern slavery acts (California, UK, etc.)

Don’t think that just because you visited the primary factory locations of your supplier and your supplier’s supplier and did an audit that all is clear. Your supplier’s supplier might have five different locations, and while the main location is clean, safe, not overcrowded, and complete with paperwork on all workers demonstrating minimum age and fair wage, the additional locations might be dirty, full of safety hazards, over crowded, and use hordes of undocumented workers, including underage, underpaid, and even forced workers brought in by the local “contractor” to make sure the line runs 24/7 to get those orders out and more currency in. But your supplier’s supplier, operating in a relatively lawless zone compared to the zone your headquarters is in, does this with impunity as it knows that, with the right bribe here and there, the most it will get is a slap on the wrist for its transgressions while your officers could be facing criminal charges.

Damnation exists throughout the supply chain, not just with the immediate supplier and the immediate customer.

Damnation, you left a happy job
Damnation, and now your head throbs
Damnation, now you’re in too deep
It’s a Procurement Damnation
and it makes you wanna weep

State of Flux Has the Treatment for Your SRM Ailments: Part VII The SRM Platform Continued

As per our last post, so far in this series we have discussed the need for SRM (Part I), Chicago and a foundation for your SRM effort (Part II), tips and tricks for foundational success (Part III), the importance of good supplier relationships and State of Flux’s latest research report The Business of Supplier Relationships (Part IV), the six pillars of supplier relationships and their importance (Part V), and a review of the coverage of the State of Flux Statess SRM platform to date (Part VI), known as Statess.

The State of Flux platform has been under heavy, active development since our coverage early this year and considerable progress has been made on four fronts:

  • Prospective Suppliers
  • Accreditation and Compliance Tracking
  • Contract Management Enhancements
  • KPI Templates and Dynamic Drillable Scorecards

Prospective Suppliers

State of Flux has been actively developing a supplier self-registration system that allows a supplier to go through a dynamic question-based workflow-driven system that captures all of the information required for the supplier management team to verify, and qualify, a supplier for organization RFXs and innovation challenges. Depending on the industry, geography, and products or services being offered by the supplier, the amount of information required can vary from a few pages to a few dozen pages and the questions required may or may not need to cover environmental, ethical, financial, corruption, sustainability, or related areas of corporate social responsibility and the depth will depend on where the supplier is, what products the supplier is offering, where the products will be sold, and who the supplier is dealing with.

Accreditation and Compliance Tracking

State of Flux has been actively extending their ability to track and manage accreditations, compliance requirements, and compliance incidents. In addition to supporting detailed tracking down to a component level if need be, the system also supports integration with Sedex Global and Ecovadis which contain detailed sustainability and compliance audit data for tens of thousands of suppliers. This makes sustainability and compliance tracking a breeze.

Contract Management Enhancements

State of Flux has also considerably enhanced their contract management solution which can not only store all contracts associated with a supplier, but all historical versions and be used as the system of record during and after contract negotiations. It tracks extensive meta-data, which can be defined by the organization upon implementation, and makes it really easy to identify relevant contracts, track milestones and deliverables, detect termination and auto-renew dates, and tie contracts to KPIs, innovation efforts, and related projects. It is so powerful that a number of their Global 3000 clients are abandoning their e-Sourcing and e-Procurement CLM solutions in favour of the State of Flux solution because a contract is only as good as its execution, and execution has to be managed for success.

KPI Templates and Dynamic Drillable Scorecards

In the brand new release, available now, State of Flux has considerably enhanced the performance module that (now) supports the definition of KPIs, and templates, that can be applied across the supply base, defined down 4 levels, and used in dynamically created drill-down scorecards that show the user exactly what she wants to see with respect to a product line, geography, and/or supplier. In addition, the platform now comes with a number of pre-defined templates for standard KPIs across different performance categories that will make initial scorecard definition easy for the average organization. The user can also define when KPIs and scorecards should be automatically updated and create a dashboard with key (roll-up) scorecards that the user needs to track on a daily basis.

The user interface for Statess has been enhanced and usability is very straightforward. Plus, State of Flux is planning to attack the Master Data Management issue in 2016 and make it easy for an organization to also use the solution as a Supplier MDM tool since it is capable of tracking, and integrating, all supplier related information. It’s really just a formal definition, open schema, and API away from meeting this need.

State of Flux Has the Treatment for Your SRM Ailments: Part VI The SRM Platform

So far in this series we have discussed the need for SRM (Part I), Chicago and a foundation for your SRM effort (Part II), tips and tricks for foundational success (Part III), the importance of good supplier relationships and State of Flux‘s latest research report The Business of Supplier Relationships (Part IV), and the six pillars of supplier relationships and their importance (Part V). While all of this is important, it only discusses part of the treatment — the process part. As has been indicated, another part is also needed — the platform part.

In addition to offering a foundation for SRM and a process, State of Flux also offers a platform, which was recently renamed Statess and covered in our 3-part series on stabilizing your State of Flux earlier this year (Part I, Part II, and Part III).

The State of Flux Statess platform is a modular, flexible, and adaptable platform that is designed to meet your:

  • relationship management,
  • risk management,
  • performance management,
  • contract management,
  • innovation management,
  • sustainability & CSR,
  • benefits management,
  • category management,
  • intelligence, and
  • programme management needs.

The platform, which was designed to be easily configurable to provide the organization and the supplier with a 360-degree view from the buyer and supplier homepages, allows the buyer to create customized scorecards and reports using configurable widgets that can access data in any part of the implemented system. Moreover, should third party data feeds be enabled (through third party plug-ins), the buyer can also access trading information related to the supplier and its products, related news feeds, and third party intelligence on the supplier.

This third party data can be used to augment the very extensive supplier profiles the system allows you to maintain. Good SRM requires good SPM (Supplier Performance Management) which in turn requires good SIM (Supplier Information Management), so it should come as no surprise that the State of Flux platform is a first rate information management platform. These extensive profiles include information on the supplier’s organizational structure as well as extensive governance information that includes the individuals responsible for the relationship on both sides.

Furthermore, information collection is quite easy as the platform supports a very powerful generic survey mechanism that, like a good RFI solution, allows multiple types of surveys to be built with multiple sections, different response types (checkbox, numeric fields, free text, etc.) for each question, and automatic weighting mechanisms. This allows the organization to prepare the appropriate internal performance surveys and external 360-degree surveys that form the basis of good performance, CSR, Risk, and Relationship management programs.

Our third post in our series briefly covered the contract management, performance management, risk tracking, and innovation modules as well as the programme module which manages the projects. Each project can be associated with a business unit, one or more contracts or bids, zero or more other modules or initiatives in the platform (including performance management, risk management, and innovation), and can consist of one or more stages or tasks defined in accordance with well understand project management methodology.

And, as per our last post on the subject matter, the platform, while quite extensive, is still under active development. In our next post, we’ll discuss a few of the new features of the State of Flux Statess platform as well as some key features not addressed in our previous series.

State of Flux Has the Treatment for Your SRM Ailments: Part V The Pillars of Supplier Relationships

In our last post, we noted that State of Flux released their 2015 Global SRM Research Report: The Business of Supplier Relationships at the State of Flux Chicago and London Events. This report, which is their 7th annual research report that analyzes detailed survey data from over 500 global companies, provides deep input into the state of supplier relationship management and the benefits that it can bring.

The importance of good SRM cannot be underestimated. For example, more than 40% of survey respondents have achieved a positive, quantifiable post-contract benefit from their SRM activities, with 31% reporting a benefit of 4% or more. Moreover, 60% report cost reductions, 52% report cost avoidance, and 39% report preferential pricing. These are substantial across-the-board benefits.

So how do you achieve these benefits? According to State of Flux, it starts by mastering the six pillars of SRM value mastery. These are:

Business Drivers

As discussed in the next pillar, an SRM program needs to be adopted to be successful. This adoption will not happen if there is no clear reason for the program to be adopted, and given that many Procurement professionals are against the wall to deliver results, the most attractive programs are those with business drivers.

There should be business drivers that will deliver solid, measurable, value to the organization. This can include spend reduction and cost control, but can also include an increased rate of innovation, faster product design and delivery, and a more collaborative, problem solving, working relationship.

As per previous posts in this series, SRM can deliverable measurable savings. And even though the soft benefits can be hard to measure, over one third of the State of Flux survey respondents indicate tangible benefits from supplier innovation, service level improvements, and risk management / risk reduction.

Stakeholder Engagement and Support

SRM requires collaboration between all stakeholders and suppliers in order to work. SRM needs to benefit the organization as a whole, not just one department. That’s why all stakeholders need to be engaged up front and support the program up front. Many SRM initiatives fail because they start in one department and overlook other key stakeholders who need to be involved because their absence causes an inconsistent front to be presented to suppliers down the road.

However, executive level stakeholder support is critical for success. As per the state of flux survey, 46% of leading companies have the backing of their chief executive. This is more than double the number of non-leading companies that have senior executive backing for their SRM initiatives (which check in at 21%).

Governance and Process

SRM programs need to be well designed, well run, and well executed. This requires a good governance program and a good process that all parties can follow. A good governance program requires a number of factors, which include, but are not limited to:

  • a designated, accountable executive
  • regular performance review meetings
  • period strategic review meetings
  • an agreed upon issue escalation process
  • performance scorecard(s)
  • contract reviews
  • risk reviews

Leaders in governance and process have all of this, and more.

People and Skills

SRM requires the right people with the right skills to be involved. They should not be led by the former office manager with no negotiation or account management experience who was thrust into a buying, and then a relationship management, role as a result of a couple of reorganizations.

Just like the skill set required by a sourcing professional (who must be a jack of all trades and master of one) is quite diverse, so is the skill set required by a(n) SRM professional. While a number of skills were identified as important by survey respondents (with over 50% of respondents identifying over 12 different skills), the following five were identified as the most important (by over 70% of respondents):

  • communication
  • strategic thinking
  • trust building
  • influence
  • cross-functional collaboration

Information and Technology

Modern supply chains, and the buyers and suppliers who keep them moving, run on information and information technology. SRM is no exception. Even though supply chains are fundamentally driven by people, as highlighted in the last pillar, these people need good information and good technology to not only get their jobs done, but excel at their jobs.

However, as we have seen, SRM is more than just process and the best SRM platforms are those that augment (or include) existing technologies that manage key aspects of relationships that affect the entire organization. For example, contract management, sustainability management, risk management, and performance management are critical to SRM success, but, with the exception of contract management, only a small number of organizations have systems for these core capabilities in place. Specifically, as per the survey:

  • Contract Management 62%
  • Performance Management 42%
  • Risk Management 31%
  • Sustainability Management 12%

Relationship Development and Culture

SRM is not a set-it-and-forget-it process or platform, it is an ongoing endeavour that must be managed as relationships must be continually nurtured and developed. In addition, cultural alignment is very important. The State of Flux Survey found that over 90% of respondents said that good cultural alignment was key to good supplier relationships. This is rational and logical — if both you and your supplier want the same thing and work the same way, it will be a lot easier to work together than if both organizations have different goals and different business processes.

To master SRM, you must master these pillars, but we have just scratched the surface with regards to what is involved and what success looks like. We highly recommend that you download the new State of Flux 2015 Global Research Report on The Business of Supplier Relationships, which is jam packed with not only definitions, but findings that will help you address each pillar appropriately. You won’t be disappointed.

State of Flux Has the Treatment for Your SRM Ailments: Part IV The Business of Supplier Relationships

At the State of Flux Chicago and London Events, State of Flux released their 2015 Global SRM Research Report: The Business of Supplier Relationships. This report, which is their 7th annual research report that analyzes detailed survey data from over 500 global companies, provides deep input into the state of supplier relationship management and the benefits that it can bring.

The importance of good SRM cannot be underestimated. As the report clearly states in its introduction, the nature of business is changing, with many companies becoming both flatter and more reliant on third parties to delivery everything from customer support through to research and development … in other words, businesses are putting more and more of their brands’ reputations into the hands of other companies. In such a scenario, a business can only be as good as its worst supplier.

On the other hand, becoming a key supplier’s customer of choice will bring access to a range of benefits, from price advantages to innovation — and that failing to do so will mean such benefits accruing to competitors instead. However, this is no longer as easy said as done as changing business dynamics are giving suppliers more power and choice about who they partner with, and how.

More than 40% of survey respondents have achieved a positive, quantifiable post-contract benefit from their SRM activities, with 31% reporting a benefit of 4% or more. Moreover, 60% report cost reductions, 52% report cost avoidance, and 39% report preferential pricing. These are substantial across-the-board benefits. While a strategic sourcing decision optimization event on a category might save 10% or 12%, that savings is limited to the handful of categories that the organization has time to strategically source. If the average organization has 60% of spend under management, only has time to strategically source 1/3rd of that in a given year, then the organization only saves 10% on 20% of spend, for a grand savings of 2%. But a great SRM program can save 4%. Across the board. Year over year. This is substantial.

This is not unrealistic. As per our previous posts, research demonstrates that good SRM contributes to as much as 70% of a company’s gross profit. No other business function can make this claim. And, most importantly, State of Flux‘s seven years of research has demonstrated that the benefits, both ‘soft’ and ‘hard’, that have been secured by the companies leading the way in SRM have continued to increase. The gap between the leaders and the laggards is getting bigger and bigger.

Supplier relationships are big business, but improving them requires more than a will. It requires knowing the way. That will be the subject of our next post.