Successful supplier identification, qualification, and onboarding require a stringent supplier relationship check. This is important because it drives a long-term relationship with the supplier and the client, not based on cost, price reduction, or specification alignment.
This lesson, to me, is the art of any successful supplier relationship.
However, many procurement professionals and their organizations need to gain these skills. No wonder the relationship with the supplier is shabby, and most times, a one-way approach where the client is always looking for ways to save money and still get quality materials, and the supplier is always looking for ways to increase the price. "Any relationship that is not built on compatibility is a relationship that is heading for a crash."
In this essay, I introduce you to "what" a supplier relationship fit is and "how" to successfully develop a supplier relationship compatibility/fit, implementation, and management.
Supplier: An organization that provides raw materials, products, or services.
Compatibility: the state in which two things can exist or occur together without problems or conflict.
Supplier Compatibility is when an organization that provides raw materials, products, or services shares similar strategic approaches, goals, and objectives.
Some years ago, I heard someone who had not been exposed to significant processes and had no chance to consider all industry connections of a business event say: “Why must present-day everything be a project? This is just a task to do.” These words are the opposite of how I see modern governance in business and risk management.
If you take a closer look, anything we do is a kind of project, smaller or larger, but on nearly every occasion, we plan action, steps, workflow, risk, and expected outcome. Whether or not we are aware of this, this is a fact. Even such a simple task as going to a store to purchase a loaf of bread can be described as a project.
We do plan when to go (the store must be open), what to wear outdoors (depending on weather conditions), we do plan to have some money in our pocket (enough to pay, and not too much “just in case”), we do try crossing roads safely, we do expect to return home with the said bread. The deeper you consider it, the more details and sub-tasks you can recognize. Sometimes you do this on your own; on other occasions, you may like involving other stakeholders, whomever it may mean.
The same strategy we shall apply in business. The more critical the process or, the more significant business it is, the more risky your operation may be, and the more carefully you should prepare, perform and govern the project.
Grzegorz A. Pioruński, Vice President Financial Services, BNY Mellon
One of the significant advantages of the Sourcing Industry Group (SIG) is that members have unparalleled access to industry insights and expertise through our vast and diverse community of practitioners and thought leaders.
Recently we conducted interviews with two senior procurement executives regarding their innovatively practical approach to dealing with inflation and its impact on supply chains.
In the first instance, we talked with Tony Abate - Senior Vice President & Global Chief Procurement Officer at Cigna Express Scripts.
When Cigna closed its $67 billion acquisition of Express Scripts in December 2018 to become what the media called a “$140 billion revenue healthcare colossus,” Tony’s responsibilities expanded considerably.
Responsible for “transforming and integrating two procurement departments into a global, world-class international team, he is accountable for the CIGNA taxonomy research, analysis, and development, including identifying 8000 suppliers with an annual spend of $4.5 billion.
Our second executive is Michael Koontz. Michael is the VP Strategic Sourcing & Business Leader for ATD Sourcing Solutions, whose unique approach to battling inflation we will discuss in a follow-up post.
Creeping Into Supply Chains
Shortly before his interview with SIG, Tony gave a speech to 1500 employees at Cigna on inflation and its impact on supply chains.
So how do you get from tactical procurement metrics to more powerful spend/supply measures that help build new capabilities and favorably impact critical business outcomes?
We have mentioned some of the more expansive sets of metrics that organizations use to measure several areas:
● Spend/cost management and savings
● Supplier/supply performance
● S2P process metrics for process performance
● Underlying capabilities in talent management, digital, etc.
● Stakeholder-specific metrics related to the above
In this third installment, we’ll dive a little deeper into some example metrics, but the first order of business is to provide a framework giving the backdrop on the KPIs and use it to hone in on metric types before listing individual KPIs.
Pierre Mitchell, Chief Research Officer, Spend Matters
The concept of sustainable sourcing, also known as green purchasing or social sourcing, is nothing new. Sustainable sourcing is impacting nearly every area of corporate business and the consumer’s mindset. Everything from sourcing materials, talent attraction and consumer purchasing habits is changing because of sustainable sourcing growth. However, the term gets thrown around in the procurement industry quite often and is often misunderstood or misused. So, here’s a guide with all the basics you need to know about sustainable sourcing.
WHAT IS SUSTAINABLE SOURCING
First and foremost, we have to define the term. Sustainable sourcing is the integration of social, ethical and environmental performance factors into the process of selecting suppliers. It includes purchasing sustainably preferable products and services (products made from recycled or remanufactured materials), as well as green purchasing guidelines that might pertain to certain products or commodities.
What’s keeping you up at night? CPOs today are under continued pressure to reduce costs and find new sources of value – and of course, manage risk.
At the same time, CPOs want to become more strategic advisors to the business. We’ve found the perfect opportunity to help you achieve those goals and more.
As a CPO, you probably manage millions of dollars’ worth of spend on services. Think of all the money your company spends on consultancies, IT services providers, marketing agencies, law firms, accounting firms, facilities management companies and more. These services providers operate across the enterprise, perform vital work and deliver enormous value.
You manage the contracts and rates for these services, but beyond that, how much attention do you pay to that spend? Do you know whether these services providers are delivering high-quality work? Do they hit deadlines? Is your business getting good value for money?
Most of us are guilty of under-managing services providers. That’s one of the key findings from a groundbreaking new research study published by SAP Fieldglass in collaboration with Oxford Economics, titled Services Procurement Insights 2019: The Big Reveal.
America’s love affair with e-cigarettes evaporated quickly as millions of users were recently confronted with unnerving news—their vapes could actually contain toxic chemicals powerful enough to be deadly.
The CDC issued words of caution on September 27, “Anyone who uses an e-cigarette or vaping product should not buy these products off the street.” The sentiment is clear—consumers need to avoid e-cigs from potentially shadowy manufacturers and distributors fed by an unregulated supply chain.
Duty to the Consumer
E-cig manufacturers have a responsibility to pinpoint precisely what in their products is harmful, just as distributers must be confident they are only carrying reputable items that are sourced through a responsible supply chain. Many vaping products have been found to contain illegal synthetic marijuana, even when consumers believed they were buying THC-free products such as CBD pods.
In an industry as young and unregulated as e-cigs, it’s not surprising an unknown health consequence was lurking on the horizon. Consumers had no idea what ingredients or manufacturers to be wary of because no one yet knew there was a concrete hazard.
Liz Mantovani, CSP, CSMP, C3PRMP, Director of Operations, SIG
When Barry Kull was going through the recruitment process at Novo Nordisk, his son was diagnosed with diabetes. Walking into his meeting, Kull was apprehensive about mentioning his son’s diagnosis, but when the conversation went such, Kull brought up it up. He was glad he did. “When I mentioned my son’s diagnosis, the CFO’s body language and energy absolutely changed. He leaned into the conversation and was genuinely curious about my son. He told me how Novo Nordisk addresses challenges that adolescent type 1’s encounter.” Kull realized that the executives at Novo Nordisk care. He is now proud to represent a company that, throughout the organization, empathizes with its customers.
Finding Suppliers That Care
Kull doesn’t expect suppliers to care as much as Novo Nordisk, but he expects them to understand why they care so much. He expects the suppliers to lead, to anticipate and to push their thinking. Kull believes that all procurement professionals should have supply partners that are good people with strong ethics.
The Cooperative Ecosystem
A cooperative ecosystem is a combination of different partners and suppliers that bring their own set of values to the table. The partners and suppliers work together to solve a specific problem or to create an opportunity.
In the context of launching a new pharmaceutical brand, the following is Kull’s (paraphrased) list of potential partners and suppliers that might be part of a brand-viable ecosystem:
SIG University student Moath Alswaidan enrolled in the Certified Sourcing Professional (CSP) program and works at Mitsubishi Heavy Industries – MHPS Saudi Arabia. He shares what he’s learned in the program and how his team plans to implement best practices in supplier performance management.
Supplier performance management is one of the most important areas in sourcing and supply chain management and I feel fortunate to have worked on both the sell side and buy side of the table. Most of the sourcing process requires much effort from both sides until the work is awarded to the supplier. Supplier selling teams spend time and effort to prepare to negotiate a proposal that best fits the buyer. At the same time, the buyer team needs to put the same effort in searching and selecting the best proposal for their organization. It is a waste if the agreement doesn't last due to the lack of supplier performance management.
The supplier performance management process begins by selecting the team from both the buyer and supplier organization. The mission is to translate the contract into the operation language and identify the measurement and monitoring criteria. This task is called transition. The team should have enough knowledge of the business and the scope of work defined in the contract. The transition process requires a joint effort from the transition team and may also require the support of other teams in the organization. The transition process is considered a change from an existing state to the desired state. Therefore, it is recommended to adapt to Lewin's Change Management Model: Unfreeze, Change and Refreeze.
Moath Alswaidan, Supply Chain Manager, Mitsubishi Heavy Industries – MHPS Saudi Arabia
Many companies are on missions to improve their procurement processes. One technique that caught my eye is an approach used by the U.S. government, which started in 2011 when the Office of Federal Procurement (OFPP) , a unit of the Office of Management and Budget began disseminating a series of “myth-busting” memos.
The concept is interesting because it is aimed at helping procurement people (many of whom have been in their jobs for their entire career) realize that policies and practices are much different than what they have learned over the years. The first memo explains that “with expenditures of over $500 billion annually on contracts and orders for goods and services, the federal government has an obligation to conduct our procurements in the most effective, responsible, and efficient manner possible.”
So what are some of the common myths? One is a major misconception that the government can’t meet one-on-one with potential suppliers as they seek the best way to develop a strategy or prepare for a competitive bid. Sadly, many in government procurement believe this is not allowed, because talking to one supplier can unfairly disadvantage other suppliers that are not also called into meetings.
The myth-busting memo sets it straight, pointing to the Federal Acquisition Regulation (FAR), in Part 15, which actually encourages exchanges of information with interested parties during the solicitation process; this then ends with the receipt of proposals. “There is no requirement that the meetings include all possible offerors, nor is there a prohibition on one-on-one meetings,” the memo says.
Kate Vitasek, Educator and Expert, University of Tennessee