Why Supplier Value Management, and Why Now? (Part 1): The Top 3 Areas to Focus On

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Spend Matters welcomes this guest post from Bill King, customer account director at BravoSolution. 

"We cannot solve our problems with the same thinking we used when we created them"- Albert Einstein

In a world of uncertainty, struggles to hit your numbers and declining savings for sourcing events, it’s time to try something different. Well, it’s not that different. The practice has been around for over a decade. Most companies, however, haven’t quite yet embraced supplier value management (SVM) as a strategy to increase savings, reduce cost and build supplier relationships.

Wikipedia describes SVM as “the discipline of strategically planning for, and managing, all interactions with third-party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions. In practice, SRM [SVM] entails creating closer, more collaborative relationships with key suppliers in order to uncover and realize new value and reduce risk of failure.”

I prefer to use the term supplier value management rather than supplier relationship management because ultimately, it is in value that you build the partnership or relationship. True relationships are born out of the value that each party brings to the table. This isn’t just about the supplier providing value to your organization; it’s a two-way street. Anything else and it isn’t really a partnership.

Why SVM? SVM is not just a SaaS tool — it’s much more. SVM means defined processes, supplier segmentation, supplier qualification, supplier assessments, risk assessments, KPIs, performance, compliance, certifications and building strategic partnerships, to name a few.

It also has direct financial implications for your bottom line. Research shows that you can gain approximately 0.5% to 3% additional savings utilizing the SVM solution for your RFPs/RFQs. While those numbers may not seem like a lot, I like to use the saying that any small number multiplied by large numbers return large savings.

Yea, I know, this sounds all wonderful and fluffy, a perfect world scenario. I can hear you saying, “That doesn’t apply to us. It would take years to develop, maintain and administer.” And I would tell you that you are right, to some degree.

I have worked with a lot of clients over the years teaching best practice building supplier processes, procedures, performance, segmentation, qualification and more. Honestly, it isn’t always easy. If I go into a client who has absolutely no processes in place, that project got a little harder. However, that is where best practices learned across multiple industries can have a major impact on the overall success of the SVM project. I always teach that I have made so many of the mistakes myself — there is no need for you to make the same ones.

Why SVM now? Time keeps ticking, ticking, ticking into the future. Each day without a strategic plan for your suppliers, money has left the building and it is gone forever. To be clear, some of that is true dollar savings, but there are other factors such as lost opportunities, missed value adds, wasted collaborations, elevated risk mitigation, expired documentations and certificates and much more.

So, how much longer are you willing to punish your company with lost opportunities and savings? A day? A week? A month? A Year? Longer? I can promise you that your competitors aren’t.

Tic-toc, tic-toc, tic-toc.

In this series, “Why Supplier Value Management, and Why Now?,” we will review deeper specific applications of SVM. Next up: Supplier Onboarding, Qualification and Segmentation.

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Voices (2)

  1. Steve Ighorimoto:

    Thank you Bill for sharing this topic. Supplier Value Management is critical when an organization has only one vendor/supplier for a key material in the manufacturing process. The return from the relationship is usually more than the 3% threshold if you factor in lost opportunities in the marketplace.

    1. Bill King:

      Absolutely Steve! That number will certainly go way up if you factor that in.

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