How to Build More Successful Strategic Supplier Relationships

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1 a Decideware white paper How to Build More Successful Strategic Supplier Relatioships Icorporatig Performace & Value metrics i supplier scorecards supplier performace experts scorecards.deploymet.service decide ware Sa Fracisco Sydey Lodo

2 Assessig performace i strategic supplier relatioships The impact of the curret ecoomic climate has forced may eterprises to more closely scrutiize costs, performace ad risks i their supplier ad idirect vedor relatioships. As a result, may Chief Procuremet Officers (CPOs), Chief Iformatio Officers (CIOs) ad Chief Marketig Officers (CMOs) ow uderstad they must evolve their assessmets techiques beyod Cotract Compliace ito the area of Supplier Developmet to improve performace ad geerate greater cost-efficiecies. Supplier Developmet is a vastly differet exercise to Cotract Maagemet. Cotract Maagemet refers to a process of esurig specific operatioal ad evet-based metrics meet the prescribed levels i the legal documetatio (Cotract, Statemet of Works/ Service Level Agreemets). Supplier Developmet ivolves wideig the assessmet focus to iclude advaced evaluatio techiques ad subsequet actio plaig. This ivolves a process to idetify ad measure the factors which drive better performace, improve cost efficiecies ad reduce risk thereby geeratig competitive advatage. Supplier Developmet aims to implemet maagemet techiques that cotiuously optimize logterm, strategic supplier relatioships. Strategic suppliers/vedors are defied as those that provide high value, high complexity goods or services examples beig IT, Marketig, Services, etc. Assessig these relatioships requires the ivolvemet of seior level executives who must ivest a degree of time, traiig, ad resources to icrease the value of these relatioships to the eterprise. Steps assessors must take to better evaluate strategic supplier relatioships 1. Segmet the etire supplier base ito several strata based o eterprise eed, size of sped, criticality of supply, etc. 2. Develop programs that are appropriate to each of those segmets. 3. Apply tools which recogize the importace of the top tier represetig the most strategic set of suppliers to the orgaizatio. While smaller i umber, this segmet comprises the more complex, higher value suppliers where measuremet scorecards must evaluate the performace, value ad risk withi these relatioships. Decideware How to Build More Successful Strategic Supplier Relatioships 2

3 High value, high complexity ad high-risk The reaso that cotract compliace falls short as the sole meas of evaluatig strategic supplier relatioships is it fails to take accout of importat itagibles like uderstadig, satisfactio, trust ad proactivity. To develop strategic supplier relatioships it is essetial that there is a shared uderstadig o both sides of the relatioship about goals ad objectives, stregths ad weakess, ad the priorities ahead. Covetioal programs fail to measure performace i these critical areas. Effective supplier developmet programs, as well as measurig cotract compliace, put i place frameworks to assess satisfactio ad performace i key itagible areas. Typically this is achieved usig survey-style scorecards ad scorig from all team members. Importat features of this process iclude:- Performace & Value orieted metrics are those which help the buyig orgaizatio develop ad maitai a strategic advatage agaist their competitors. The scorecards must reflect expectatios i the relatioship i terms of measurig the right thigs ad havig them appropriately prioritized. Ideed, the very developmet of these scorecards esures that all stakeholders get o the same page, ad the supplier kows exactly where the priorities lie; All participats i the process get a opportuity to cotribute, so opiios from all levels ad all areas are cavassed; Commets as well as scores ca be collected so maagemet ca idetify the reasos for either stregths or weakesses; The performace of the cliet orgaisatio ca be assessed as well as that of the supplier. O this last poit assessmet of the cliet s performace sophisticated cliet orgaizatios these days have come to realize that problems i the relatioship are just as likely to stem from weakesses withi as without. The ature of maagig successful strategic supplier relatioships requires both cliet ad supplier staff to collaborate o developig ideas that will ultimately grow ito iovatio ad proactivity. It s ot simply about the supplier deliverig hard tagibles to the requiremets of the cliet. By disregardig measuremet of the qualitative compoet i the relatioship, buyers lose the ability to gai a meaigful competitive advatage. Decideware How to Build More Successful Strategic Supplier Relatioships 3

4 Why traditioal supplier maagemet tools do ot iclude performace & value There are two primary reasos why traditioal supplier relatioship maagemet solutios do ot iclude performace & value metrics: Limited Focus Traditioal supplier assessmet solutios emphasize cotract compliace, focusig o tagible criteria such as pricig, respose times, labor rates ad delivery schedules to measure the relatioship. Sice these solutios focus o the collectio ad admiistratio of operatioal data, rather tha the views of people workig o the busiess, they do ot ucover key stakeholder perceptios. Without this, eterprises have a icomplete picture of their strategic supplier relatioships, makig the process of idetifyig ad correctig performace impedimets more difficult. Traditioal supplier maagemet solutios do ot provide a formal way to deploy performace & value metrics both qualitative ad quatitative. Iadequate Desig Traditioal supplier maagemet tools are uable to provide detailed aalytical iformatio via a data-warehouse that would eable both cliets ad suppliers to effectively track relatioship-orieted iformatio, ad how it chages over time. So, ay problems associated with a strategic supplier relatioship might cotiue uabated for some legth of time before they ca be idetified ad resolved. Trust ad collaboratio two key igrediets to supplier developmet success Two importat igrediets i great supplier relatioships are trust ad collaboratio. Recet research has demostrated that greater trust leads to better performace, through greater disclosure, collaboratio, aligmet ad mutual iovatio all of which provide a sigificat competitive advatage. Therefore, eablig greater trust i strategic supplier relatioships becomes essetial to achieve key busiess goals While typically ot part of a formal performace evaluatio process, supplier maagers should ask questios to measure the levels of trust, aligmet ad collaboratio i their strategic supplier relatioships. Such questios might iclude the followig: How are our suppliers meetig our eeds ad expectatios? Are they workig collaboratively with us to meet our busiess goals? Are they iovatig, desigig ew products ad services to meet our curret ad future busiess requiremets? Are they re-egieerig their busiess systems to maximize efficiecy? Do they uderstad our market ad strategic busiess pla? Are their key executives pro-active, resposive ad accessible? Are they respodig to market dyamics i the way that we eed them to? Do they seek to optimize our costs, treatig our moey like their ow? Are we seeig cotiuous improvemet of quality year o year? Growig greater trust i strategic supplier relatioships is essetial to achieve key busiess goals. Recet empirical research has established that greater trust i supplier relatios leads directly to better cliet fiacial performace. (Hake, CPO Ageda, 2008) Decideware How to Build More Successful Strategic Supplier Relatioships 4

5 Key characteristics of a successful supplier developmet solutio There are several features that executives should look for i a solutio to eable a performace & value assessmet approach: Accurate assessmet & scorig methodology a ideal solutio must combie both qualitative feedback ad quatitative data ad offer various meas to aalyze ad report o that iformatio. The process should produce a accurate overall score for each supplier which ca be compared with other suppliers ad tracked over time. Assessmet of the cliet s performace as well as that of the supplier. To state the obvious, the cliet sets the goals ad parameters i the relatioship, so it s essetial that the cliet acts competetly, resposibly ad optimally. The ideal supplier performace & relatioship maagemet solutio should feature a sophisticated database to offer cliets speed ad flexibility i scorecard desig, data capture, aalysis ad reportig. Sigificat techological horsepower to improve supplier relatioships, cliets ad suppliers alike must share iformatio ad joitly collaborate o effective result orieted strategies. This process ivolves geeratig a highly tailored ad relevat assessmet framework, collectig data from the right people, ad the distributig shared reports to the participatig parties, i order to facilitate ecessary chages. This complex task requires a sigificat amout of techological horsepower ad simple survey tools typically do t have the required fuctioality to address this. Rapid feedback coductig performace assessmets ca be extremely frustratig for cliet stakeholders ad suppliers, especially if they have to wait a exteded period of time before they receive aggregate reports. Therefore, the ideal supplier developmet solutio should provide a process to rapidly collect ad distribute clietsupplier feedback. By closig ay delay betwee data capture ad reportig, suppliers ca be egaged more quickly to improve the workig partership. Flexible desig the ideal supplier relatioship maagemet solutio should have a flexible applicatio desig. This allows stakeholder to retrieve the exact iformatio they eed, i a format most useful to them ad at a time whe the iformatio is most eeded, i order to facilitate effective decisio makig for the greatest impact. I short, the solutio must utilize sophisticated data warehouse techology which allows cliets flexibility i the scorecard desig, data capture, aalysis ad reportig stages. Busiesses must icorporate ew tools to shift the focus from purely operatioal data to performace & value orieted iformatio that will build greater trust ad affiity betwee cliets ad suppliers. Decideware How to Build More Successful Strategic Supplier Relatioships 5

6 Case Study of a Supplier Developmet Solutio The followig case study shows how a supplier developmet tool is beig used to evaluate the performace & value i the relatioships of a global compay with a key category of strategic suppliers: I a effort to icrease performace ad optimize expeditures, Eterprise X (ot their real ame) decided to focus its attetio specifically o improvig the effectiveess of the bottom 20% of its high value, strategic supplier segmet. To accomplish this task, it tured to a supplier developmet solutio to idetify ad optimize the relatioships with their strategic suppliers that had critical workig relatioships with their various busiess divisios. The eterprise s mid-level maagers collected feedback usig scorecards for each strategic supplier withi their assiged sub-category. The scorecards icluded iformatio o each supplier s ability to meet stated busiess objectives, as well as performace & value feedback collected from both busiess ad supplier persoel regardig the status of their workig relatioships. The supplier developmet scorecards combied raw busiess data (icludig sales, supplier fiacials ad busiess objectives) with performace ad value related iformatio such as: Ratig scores from both iteral ad supplier employees regardig their perceptio of their workig relatioships. Those suppliers that had re-egieered their busiess systems i the past year to meet the compay s eeds ad the results that were achieved. The suppliers that had demostrated the highest ad lowest level of performace relative to their projects. Specific cotributios made by each supplier i meetig their quality objectives durig the past year. Fiacial stewardship, both i optimizig costs ad improvig efficiecies. O request, scorecards from each mid-level maager were aggregated ito a sigle sortable report that provided the executive team with the ability to rak their suppliers. This allowed their seior maagemet team to determie those that required review, those that required a cocrete actio pla to improve their performace ad also the high performers that deserved recogitio. The bottom 20% of suppliers (those havig the lowest scores), that are uable to improve their performace scores ad icorporate the recommeded improvemets were targeted for oreewal of their cotracts. Decideware How to Build More Successful Strategic Supplier Relatioships 6

7 Cocludig summary The competitive ature of today s eviromet requires procuremet executives to reoriet their thikig regardig their strategic supplier relatioships. A critical elemet of supplier assessmets ivolves measurig the way people work with each other, icludig their perceptios of the performace & value withi the relatioship. Without this iformatio, eterprises caot coduct complete ad accurate assessmets of the value that their strategic suppliers cotribute to the busiess. Ufortuately, traditioal supplier cotract maagemet solutios do t provide the capabilities eeded to focus o performace & value. Busiesses must icorporate these ew tools to exted the focus from purely operatioal data to performace & value-based iformatio i order to improve their assessmet processes ad build greater trust ad collaboratio betwee cliets ad suppliers. Oce the ew processes are established, ehaced supplier relatioships will have a greater role i reducig costs, improvig performace ad meetig strategic busiess objectives. Garter Research foud there are may pitfalls i buildig a effective supplier developmet program targetig strategic providers. For example: The vast majority of the supplier base is ot truly strategic to your orgaizatio. A critical success factor i maximizig supplier value is movig away from trasactioal, evetbased behavior ad toward log-term relatioship maagemet. Uderstadig your supplier drivers & motivatios is key to buildig a better relatioship. Supplier Developmet maagers must carefully draft commuicatio aroud issues to esure a costructive dialogue. Further, they recommeded Supplier Developmet programs should: Preset a balaced view of your suppliers withi the orgaizatio, as well as i commuicatios to the supplier ot just focusig o the egatives. Carefully distiguish betwee suppliers that purely costitute a high sped ad those that have true strategic value to the orgaizatio. Source : Avoidig the Most Como Pitfals i Strategic Vedor Maagemet, Wiliam R. Syder, Garter 10 Dec 2007 Decideware How to Build More Successful Strategic Supplier Relatioships 7

8 About Decideware Decideware offers a suite of o-demad busiess applicatios desiged to improve strategic supplier relatioships, icludig a specializatio i Advertisig Agecy & Strategic Supplier Relatioship Developmet. I may cases Decideware takes existig processes ad makes them faster, more efficiet ad easier to use for larger eterprise-level orgaizatios via a web-based delivery. The Decideware Relatioship Optimizer is a purpose-built, o-demad SaaS-based (Software as a Service) software applicatio which helps CPOs, CMOs ad CIOs better evaluate ad maage their strategic supplier relatioships. Relatioship Optimizer offers eterprise cliets the uique capacity to icorporate the performace ad value compoet i supplier performace assessmets i additio to more traditioal quatitative orieted metrics. For vedor maagemet executives who desire exceptioal data to support their supplier developmet programs, Relatioship Optimizer provides timely, useful ad valuable iformatio. I March 2008, Decideware was amed as oe of the Garter Cool Vedors i Procuremet ad Fiace, recogizig Decideware s iovatio i providig eterprises with a superior tool to better maage their high-value, strategic supplier segmet. Decideware was amed i the Supply & Demad Chai Executive 100 for 2008 ad Richard Beyo was also amed i the Supply & Demad Chai Executive Pros To Kow i For further iformatio about Decideware, see or cotact: Richard Beyo at Derek Groom at or Decideware ad the Decideware logo are registered trademarks of Decideware Developmet Pty Ltd Decideware How to Build More Successful Strategic Supplier Relatioships 8

9 supplier performace experts scorecards.deploymet.service decide ware Sa Fracisco Sydey Lodo USA Decideware, Ic. Oe Market Street Spear Tower, Suite 3600 Sa Fracisco, CA Tel: UK Decideware 2d Floor, Berkeley Square House, Berkeley Square, Lodo W1J 6BD, U.K. Tel: AUS Decideware Developmet Pty Ltd ABN Level 3, 53 Walker Street North Sydey NSW 2060 Tel:

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