The Art of Supplier Relationship Management

Hot Topic

Please welcome this article from Paul Blake of GEP on our Hot Topic for this month. It is published in two parts and the second will appear tomorrow. For more interesting thinking on procurement, visit the GEP Knowledge Bank.

British TV has just seen the completion of a competitive painting challenge show. Identical in format to the cooking and dancing shows, each week the contestants are set three challenges and one of them is sent home.

It was bound to happen. We've had baking, sewing and even orchestral conducting subjected to the same formatting. If it works, do it again, seems to be the rule.

But art is different, surely? Who is to say there is a right and a wrong way to paint three bits of fruit in a bowl? No doubt, from a range of amateur works most of us would pick out the "capable" from the "hopeless" but painting isn't like baking. If you want to find out who makes the best bread then get everyone to use the same recipe and taste all the results. Relatively straightforward. However I do feel the judges in the painting show were on a hiding to nothing trying to use empirical assessments to weigh one wildly different style against another.

Attempting to shoehorn a scientific system of metrics into a purely subjective context is really very tricky indeed. Economics is similar, actually. Whilst the language of economics is very scientific and pragmatic in nature, in practice the world's finances seem to be chaotic systems, to use the mathematical terms, subject to huge fluctuations resulting from unpredictable and otherwise trivial trigger conditions. Economists make a career out of attempting to categorise, formalise and predict the markets but, despite being framed as an empirical field of study economics is definitely more Art than Science.

As, indeed can be supplier relationship management.

Today the procurement technology market offers a wide range of software, systems and methodologies for you to Manage Your Supplier Relationships. It is a challenge that many if not most enterprises are facing. How effectively to assess, measure, enumerate and classify the relationship with a vendor is a core part of many strategies in procurement but, like any human relationship there are no hard and fast rules that exist independently of that relationship that can be used to determine whether it is a good one or not.

The temptation is to identify some characteristics of the partnership that can be measured. In some instances, this is straightforward. If your manufacturing process is determined by some hard facts such as the measurable quality of a raw material, then your supplier's ability to perform to that benchmark is easily assessed and recorded.

Similar quantitative measures exist across other supplier activities: percentage of deliveries on time, perhaps, or proportion of orders delivered complete. These are the kind of performance indicators that are regularly used in assessing supplier relationships.

However, my contention is that, in and of themselves, these are insufficient to act as an accurate measure of the overall value of that relationship to you. In fact, oversimplifying the measurement can lead to your assessing the wrong performance indicator entirely.

And tomorrow we will look at an example of that.

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