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A recent article in Industry Week had a good article that outlined “10 strategies for managing suppliers”. In brief, they were:

• Understand the true cost and value of the supply chain.
  A supplier cannot be properly evaluated unless you understand the costs they entail and the value they bring.
• Realize that supplier strategies go two ways.
  It’s not just what the supplier can do for you, it’s also what you can do for the supplier to help the supplier lower costs. Can you secure the raw materials cheaper? Pay earlier and mitigate their need for expensive credit lines (and thus reduce your total cost)?
• Accept accountability.
  You need to be planning sufficiently in advance to insure that you place all orders with acceptable lead times. You need to insure a supplier has the information they need, when they need it.
• Incorporate appropriate service levels and metrics into agreements.
  A supplier needs to know precisely what is expected of them if they are to live up to your expectations.
• Spend equal time aligning incentives and penalties.
  Despite your inclination as a risk mitigator to always worry about the worst cases, you need to also consider the best cases and incentivize the supplier to deliver above and beyond their commitment.
• Share critical information as early as possible.
  Sharing information constantly, with appropriate security and confidentiality, is critical for successfully managing a supplier relationship.
• Plan for everyday exceptions.
  Even the best of plans will go astray. Make sure you have a plan that specifies how emergencies will be handled and which party is responsible for what.
• Plan for major contingencies.
  And make sure to walk through the plans regularly with your supplier.
• Expect and reward honesty.
  The best supplier relationships require honesty when exceptions to normal operations occur. Companies should require immediate notification without penalty when critical supplier situations occur.
• Make relationship meetings meaningful.
  Relationship meetings should focus on critical issues, areas for supplier improvement and discussions on how the buying organization can improve the relationship.

To this list, I’d add the following two:

• Make sure the scorecard goes both ways.
  A relationship is a two way street and the best way to capture this is to do a two-way scorecard. You can’t expect your supplier to deliver stellar performance if yours is sub-par.
• Educate and train.
  Don’t just tell your supplier what you expect of them, show them and give them the training they need to exceed expectations.

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A recent article over on SupplyManagement.com on “6 steps to better SRM” provides a good review of the basics. Even though times are tough, chances are, they are tougher for your supplier which makes good relationships even more important. First of all, you want to be the customer of choice because your supplier likely has less staff to service their customers. Secondly, you want to be the first to know if any of your strategic suppliers are in danger of going under, so you have a chance to either bail them out or find other suppliers before you run into inventory problems. Finally, like all recessions that have come before, this recession will end, demands will rise, raw material shortages will occur, production capacities will be hit, and you definitely want to be the customer of choice next time this happens.

So, how do you start? The SupplyManagement.com article recommends these basic steps:

• Segment the Supply Base
  You need to know which suppliers are tactical and which are strategic because you focus your efforts on your strategic suppliers.
• Secure Executive Sponsorship
  C-level executives must be engaged in the management of the most critical strategic suppliers and be behind your SRM initiatives 100%.
• Embed Processes and Governance
  Processes, roles, and responsibilities need to be documented, readily accessible, followed, and kept up-to-date so they can be continued in a repeatable manner if a key relationship manager leaves or if you start working with a new strategic supplier.
• Use Technology Effectively
  Technology is the great enabler for Supply Management. Use it! Need help finding a vendor? Check the vendor post index and the company directory on the resource site.
• Enhance Your People
  Train, train, and train … in what other profession can training deliver 10X, 50X, and even 100X returns when your supply managers find ways to take 10% off of multi-million dollar purchases either through better terms or by working with your suppliers to take cost out of the process?
• Measure the Benefits
  Demonstrate the results, and use this leverage to keep your technology and training up to date and to get more bodies approved to allow you to enhance your relationships and roll the SRM initiative, which will start with a core group of your most strategic suppliers, to more suppliers over time.

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There’s been a lot of buzz around scorecards over the last few years, but, as noted in a recent article in the Supply Chain Management Review, only a handful of companies have effectively utilized them to drive value. Wal-Mart is one example … Canada Post is another.

To be effective, scorecards need to be simple in concept, with metrics that are clear and easy to assemble, yet measure the few, truly impactful supplier actions. The biggest mistake companies typically make is designing overly complex metrics that are confusing to suppliers. A good scorecard selects a handful of the most important metrics that will allow the supplier to focus on the most important factors. These operational metrics, that focus on cost compliance, service performance, quality and damages, and administrative efficiencies, allow the supplier to monitor is performance and improve over time.

And to be truly effective, the scorecard needs to be:

• used frequently
  once or twice a year isn’t enough … they should be reviewed monthly
• ranked in a weighted fashion
  as this allows a supplier to get an overall picture of its performance
• monitored
  the article recommends a dashboard … but a report that calls out the most important issues will do just fine
• improved collaboratively
  if the supplier is doing well on the scorecard, but not meeting your needs, then the scorecard needs to be refined
• implemented in three phases
  for details, see the article on “unlocking value through the supplier scorecard”