SUPPLIER RELATIONSHIP EVALUATION. 6 Tips To Help Develop Effective Supplier Relationship Programs

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1 WHITE PAPER SUPPLIER RELATIONSHIP EVALUATION 6 Tips To Help Develop Effective Supplier Relationship Programs 4 2

2 A key element of best practice SRM is formal, robust evaluation of supplier relationships. This should be a routine best practice activity if the goal of your organisation is to move your supplier relationships beyond mere contract compliance. Relationship evaluation enables exploration of qualitative aspects of relationships like proactivity, trust, understanding and uncovers what people really think about the relationship. It provides an informed basis for action planning with suppliers. While the idea of robust relationship evaluation is obviously attractive, actually implementing an effective program can be quite demanding. Here are 6 tips gained from experience that might help optimise the success of your SRM program. 1 STAKEHOLDER SUPPORT The supplier relationship evaluation program must secure stakeholder support. There are likely to be 3 groups of stakeholder senior management, line management, and the supplier. What benefits can each of these stakeholder groups expect a supplier relationship evaluation program to deliver? FOR ALL STAKEHOLDERS THERE IS A COMMON COMMITMENT: TO IDENTIFY STRENGTHS AND WEAKNESSES IN ORDER TO BUILD ON THE STRENGTHS AND ADDRESS ANY WEAKNESSES EARLY. Senior Management can expect to receive organisation-wide outcomes that will enable them to benchmark performance across suppliers, business units, countries and supplier-types over time. Line Management can expect a disciplined critique of the relationship from the people who actually work in the relationship. Their scores and comments not only lets managers gauge the state of the relationship, but it also provides an informed basis for monthly or quarterly meetings with the suppliers. Suppliers can expect to receive disciplined feedback about their performance including levels of satisfaction. Suppliers can also influence the criteria they are measured against which will lead to greater buy in and ownership. If appropriate, suppliers can also provide feedback on how the buying organisation is performing (see below). For all stakeholders there is a common commitment: to identify strengths and weaknesses in order to build on the strengths and address any weaknesses early. 2

3 A KEY GOAL OF RELATIONSHIP EVALUATIONS IS TO HELP MOVE RELATIONSHIPS TO A HIGHER LEVEL OF PERFORMANCE BEYOND JUST CONTRACT COMPLIANCE. 2 EVALUATION CRITERIA & SCORECARDS What should you include in the evaluation? Generally speaking survey-style evaluations should skew towards assessing the qualitative aspects of the relationship. This recognises that the quantitative aspects of the relationship are probably being measured effectively already, many relationships become soured because of qualitative shortcomings (yet these are rarely formally assessed), and a key goal of relationship evaluations is to help move relationships to a higher level of performance beyond just contract compliance. This requires assessment in areas like understanding, pro-activity, trust, respect, openness etc. In this general context: The optimum number of evaluation criteria is probably (Overly long or detailed scorecards deter participation from busy line managers.) Typically they will be organised into 3-5 sections. It is important to gather comments as well as scores. Scores will tell you what the team is thinking but not why. (Gathering comments is especially important when an extreme score is provided i.e. either extremely good or extremely bad.) Evaluators should be given the opportunity at the end of the structured evaluation to provide any other comments they may have about the supplier relationship, and to recommend actions to improve it. In content, scorecards should be as harmonised as possible across types of supplier. This facilitates organisation-wide analysis and comparison, yet still enables some tailoring to specific situations. 3 PARTICIPATION Who should provide the feedback? Our experience is that participation should be as wide as possible, both in terms of seniority and geography. A key goal of the evaluation is to uncover strengths and weaknesses throughout the relationship. All too often problems begin at the edges and then grow to affect the whole relationship. Widespread participation helps to prevent this from happening. 3

4 4 PROCESS A basic evaluation program assesses the performance of the supplier. However, other options are available, confident client organisations consider three options: 1. Evaluation of the supplier s performance by the client organisation 2. Additional self-evaluation by the supplier of its own performance (rather like occurs in many HR evaluation programs) 3. Evaluation of the client s performance by the supplier While all 3 levels of evaluation are optimal, in practice, buyer organisations might wish to initially limit the extent of the program until all parties are comfortable with its implementation. In other words, crawl before you walk, walk before you run. 5 IMPLEMENTATION MANY ORGANISATIONS SPEND MORE TIME IMPLEMENTING RELATIONSHIP EVALUATIONS THAN ANALYSING THE RESULTING FINDINGS AND UNDERTAKING ACTION PLANNING WITH SUPPLIERS. A significant barrier for many organisations when it comes to relationship evaluations is the difficulty of implementation. Many organisations spend more time implementing relationship evaluations than analysing the resulting findings and undertaking action planning with suppliers. In situations of scale characterised by any combination of multiple suppliers, touch points, business units, countries, or supplier types it really does pay to use a specialist application. Benefits include: Accessible to a repository not just for reporting outcomes but also for administrative content like scorecards, templates, etc. Built-in functionality. Immediate reporting outcomes, with reports able to be broken out by any combination of supplier, supplier type, business unit, and geographic area. Easy tracking of the progress of any round of evaluation. 6 SENIOR MANAGEMENT SUPPORT Finally, whatever commitment currently exists among champions of relationship evaluation programs, they are unlikely to last long term unless they become embedded as a standard supplier management process. This will require senior management support and sponsorship. It is imperative to gain this support from the outset. 4

5 EFFECTIVE RELATIONSHIPS Effective Relationships helps organisations maximise value and performance from supplier relationships. We provide a range of tools and services covering all aspects of SRM including performance diagnostic, segmentation, performance evaluation, action planning, and training. Our goal is to help our clients maximise value and performance from supplier relationships. We offer services in 3 broad areas: Relationship management Contract management SRM Support Services and Training Relationship Evaluator Relationship Evaluator provides a robust framework to help organisations assess performance and satisfaction in their supplier relationships. Set-up and implementation can be tailored to the specific needs of our clients, including: Customisation of the scorecard (evaluation criteria); Process one-way or two-way. Implementation is made as easy as possible so that management time can be spent on the more valuable aspects of the program such as analysis and action planning. Contract Monitor Contract Monitor provides organisations with the ability to keep track of all their supply agreements, regardless of how they have been created. Contract Monitor allows organisations to input all the relevant agreement details plus an estimation of the time required to conduct a robust market/ sourcing study in order to select a new provider. Effective Relationships Limited 137 Highlands Heath Portsmouth Road London SW15 3TZ T E W The system allows you to build a simple, but powerful, timeline for your supply agreements. Ensuring you never miss a renewal date or sourcing opportunity again. The automatic issuing of reminders to the procurement staff covering all commercial agreements means risk and opportunities are highlighted in good time for action planning. There is also the ability to segment suppliers into four prime groups for more focused supplier activity and value creation. 5

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