A Quick Test: Gauging the Strategic Value of Suppliers to Procurement

In his recent essay, Putting the Supplier at the Heart of Procurement Thinking, my colleague Peter Smith suggests that we could very well be entering an era where the supplier becomes the central focus of procurement efforts. The transition away from “category management” is occurring now. Yet is Peter just stating something that should be an “obvious proposition” in his words? He notes that, “surely, the supplier, as a vital component in every contract, as the key player in the process and administration of procurement, and the entity that delivers the output from category management work, must already sit at the heart of procurement?”

Yet is it? In too many organizations, if you look at how “procurement people and functions think, how they prioritise and spend their time and resource, and how systems support procurement activity, that has not been the case.” It’s somewhat easy to discern if this is the case in an organization. Peter suggests that by asking a few basic questions of a procurement organization, we can tell the degree to which they prioritize suppliers:

  • How quickly can they access key information about their suppliers?
  • What are the goals and objectives of the key suppliers?
  • How many contracts does the supplier hold across the organizations, and what is their value?
  • How are they [suppliers] performing against the requirements that the buyer sets [for] them?

I can think of several additional questions to add, but a few stand out:

  • If we had to notify all of our suppliers about a change in policy (e.g., payment terms) within a 30-day period, would be have all the correct information (such as contact details including current email addresses) to either manually or automatically reach out to our complete vendor list?
  • How much does the organization know about its suppliers’ suppliers? For example, could they create a supply chain topology map tracing the top (e.g., 250) suppliers down to the raw material level on the direct materials side of the house?
  • What is the aggregate quantifiable risk (e.g., currency, commodity) exposure with suppliers over a specific time horizon based on existing contracts?
  • What levels of margin are deemed acceptable for suppliers in specific categories?

These are just a few questions in total that will help an organization to size up the degree to which suppliers are strategic to their operation. If you don’t have solid answers to at least half of these questions, perhaps it’s time to re-evaluate your overall procurement priorities.

Download the full paper, Putting the Supplier at the Heart of Procurement Thinking, in the Spend Matters free research library.

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