The modern CPO understands the impact suppliers and sourcing strategy can have on the operational efficiency of the business. No wonder improving collaboration with suppliers is one of the top three agendas for the CPO (43%) according to the 2014 study conducted by Ardent Partners. The other two agendas are to improve business collaboration (50%) and to improve the use of technology (45%).

With the significance of these responses in mind, let’s discuss the seven keys that can help you better your sourcing strategy and improve supplier relationships.

Key 1: Know your Spend

Procurement has come a long way, from tactical to being strategic, from being the purchasing department to the CPOs reaching C-level in the organization. Having said that, procurement can’t be strategic if there is a lack of visibility in organization-wide spend – what is the organization buying, who is it buying from, and in what terms?  An accounting department that doesn’t understand the reporting standards or a sales team that doesn’t have a sales pipeline is considered inept. Similarly, a procurement team with a lack of visibility is not efficient.

So why is knowing your spend important? For starters, it helps procurement take action by making informed choices, identifying savings opportunities, discovering the big-spend suppliers, and improving the allocation of resources. Organizations today manage roughly 60% of their total spending. So with the remaining 40%, there is a vast pool of opportunity that is yet to be tapped.

Procurement can and should make use of the available spend technology to mine the data and use analytics to better manage the 60% spend and tap into the remaining 40% of unmanaged spend.

Key 2: Engage Sooner

At what juncture procurement engages in the sourcing process, matters. According to the Bristol Myers Squibb analysis of 100 Sales and Marketing Projects “High-hanging fruit” by Anne Millen Porter, Purchasing Magazine, the figure shows the different levels of savings that were achieved, depending on the time procurement engaged in the sourcing project.

The earlier procurement engages in the sourcing cycle, the higher the savings. According to a survey carried out in a recently held SIG webinar for procurement professionals, 32% confirmed that procurement “often” engages in the sourcing process up-front before a supplier has been selected.

So how does procurement engage sooner? What are the strategies that can be used to communicate to the budget holder the importance of procurement’s requirement to engage sooner?

Procurement can participate sooner in the sourcing cycle by participating in the meetings of sourcing staff in specific departments or business units. This allows the procurement team to develop personal and professional relationships, build trust, and communicate with the sourcing team, so they can understand the needs of the procurement team and react appropriately. 

Key 3: Tighter Specifications

One of the benefits of early engagement is the ability to build and rationalize end-user specifications. No organization wants to continue manufacturing products that are not in sync with the current market demands. Before inviting supplier bids for the new project or for that product component, it would serve the organization better if the procurement and sourcing team got a chance to analyze the product/service market. A better understanding of the business need and its use allows for opportunities for the procurement and sourcing teams to add value to the process. The team could send RFIs to suppliers and get their feedback on the current trends and new ways or approaches that are being adopted for a specific item or service.

Research like this would ensure the end product/service specifications are exactly what the consumer is expecting.

Key 4: Better Upfront Communication

In supplier relationships, better upfront communication, to a large extent, translates into better sourcing and supplier management. Markets are moving fast which means that the incumbent supplier may not be the one to always rely on. Innovation and competition are driving the shift in the industries. The sourcing team needs to ensure that they are engaging with the best-qualified bidders. Thus it’s important to have a structured RFP process with clear-cut, simple communication – what you want, when and how you want it, and how you are going to evaluate the supplier bid. Often the sourcing professionals use RFPs that are old and not in sync with the current project requirements, resulting in incorrect information submitted by the suppliers. Technology can avoid such a scenario by helping procurement standardize and centralize the RFP process.

Key 5: Efficient Evaluations

One of the things that should be communicated upfront to the suppliers is “how are you going to evaluate them?” and the time frame for performing the evaluation. From the vendor’s perspective, one of the most exasperating things is to fill in the RFP/RFI, send it to the client, and wait for the client’s response to find out where the vendor stands in the bidding process.

The sourcing team which has to make a decision should have a plan, a general framework for the turn-around time to evaluate the bids, for evaluation criteria, and most importantly, what the organization is looking for. The plan should be well-defined, upfront, and put out to suppliers during the RFP stage. The sourcing team should also get the stakeholders together to make an early decision regarding the supplier bids. This shows that the organization is respectful of the supplier’s time and efforts. Suppliers add value to the company and so it’s important not to disappoint them.

Key 6: Warm Welcome

The reason for awarding the contract to a particular supplier is that both parties find value in the alliance. Once the award is made, and both the supplier and the procurement team have gotten through the sourcing, negotiation and contracting stages, it’s time for a warm onboarding process that is cognizant of the supplier’s requirements.

It doesn’t have to be sending flowers to your suppliers, but perhaps a standardized note acknowledging that they are an asset to the organization. A warm welcome takes a step back and resets the conversation that may have gone askew during the negotiation or contracting stage. It’s important to do so because the winning supplier could be your partner for the next 5 years or for that important new project. Or the one you’re going to heavily rely on for innovating and driving value. Simple etiquettes like these go a long way in building a successful supplier relationship/partnership.

Key 7: Proactive and Ongoing Supplier Outreach

Companies today are operating in a competitive landscape. It’s more like the supply chain of one company competing with another. In times like these, it’s important for the organization to keep the dialogue going with its supplier/s on a regular basis. For instance, LG has a global supplier day to reinforce the fact that they think of their suppliers not just as providers of items/services but also as strategic partners.

Similarly, organizations need to show they value the suppliers and their expertise. Organizations can do so by giving suppliers an idea of the product road map and how suppliers can fit into the vision of the company.

 Companies can regularly track supplier performance against the pre-decided KPIs and help suppliers improve if the performance is lacking, or collaborate with them to innovate. According to a survey carried out in a recently held SIG webinar for procurement professionals, 43% confirmed that procurement measures supplier performance (score carding) on a “Quarterly” basis.

Conclusion:

There are many ways of forging a better sourcing strategy and building supplier relationships, and they are not limited to the 7 keys discussed here. What’s important is to have visibility into the organization-wide spend and to engage with suppliers in a proactive way, sharing with and building trust with them.