Managing Risk – Collaborative Supplier Relationship Management (Part 3)

This is the last in a three-part series of articles by Jeremy Smith, Director at management procurement consultancy 4C Associates on the changing role of procurement, supplier management and how accurate data can optimise value from the supply chain.

The last two articles on data supply chain management and procurement capabilities have discussed having the required data to support Procurement delivery and tracking, and some of the many approaches that can be taken in transforming the role of Procurement in an organisation. This article now explains how these two can combine to move on from traditional category management to the more cooperative and collaborative Supplier Relationship Management approaches undertaken in areas of high importance and growth.

We’re now assuming that a company is established, but in a competitive market, and they are seeking ways to gain advantage on their competitors. When cost leadership is difficult due to low margins, then product innovation can steal you a march on your rivals. This can be delivered internally through the design department and implemented by the supply chain, or the supply chain can be involved throughout in a manner that rewards them for helping drive transformational competitive innovation.

This is a complex area and one which, if left to operational staff, could expose an organisation to significant post-contractual risk if a dependency is developed upon a supplier, or even worse if legal considerations are not taken and this innovation is able to be sold by the supplier to your rivals or if the supplier vertically integrates and becomes a competitor themselves. This is where Procurement can help an organisation move beyond ‘normal’ SRM and significantly beyond Supplier Performance Management (SPM). This has to be done collaboratively, it has to be measurable and you have to select the right supplier with which to undertake this approach. That is why you need the data and the cultural alignment, ways of working, with the organisation before starting on this journey.

I’m going to assume for this scenario that the organisation has already identified that they need supply chain assistance to drive their innovation or growth. On this assumption they now need to find the right supply chain partner. This is something that is sometimes not given sufficient thought. Operational stakeholders will rely on relationships, often for convenience, or propose suppliers known for their capability. This is not necessarily wrong but what is more important is making sure that you choose someone who has aligned motivations to you. They need to be motivated to invest in the relationship, not be already working in a significant way with your competitors and also not be relatively larger, or smaller, than the buying organisation as any immediate change in circumstances will change the power dynamic between you. These relationships will be multi-year, and the contracts need to reflect that, so having Procurement input into assessing these variables will be as important, if not more important, than the post-contractual supplier management activities.

Designing the commercial model is also important. Terms & Conditions should be communicated in advance of these discussions and aligned objectives, including the SLAs and stretch KPIs discussed and agreed at the same time. The commercial model needs to be flexible enough that changes in process or risk can be dealt with, but a key task for Procurement here is to explain internally that operating this model will not be like a traditional contract where there is clearly defined responsibilities and blame, but that the commercial model should be established where mutual risk is separated out for both parties to manage it, yet both parties are also invested in the risk.

Post contractually the ways of working should have been agreed upfront but performance management should be both ways and agreed communication channels set up in advance and supported by the data from the, if possible, shared systems. The key principle here is collaboration: mutual targets, mutual responsibility, collocated working practices and a shared commercial model. Keeping all parties working to the agreement, and that might be mostly around keeping the buyer team on track, is where Procurement can add value as this is not a skill commonly found in operational stakeholders. It is also not a skill that is found in all procurement practitioners and is outside of the traditional category management skillset.

This will however only be possible if the data to track progress and benefit exists and that Procurement are seen as a peer with a unique skillset to encourage, and enable, buyer and supplier to work collaboratively.

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