Procurement Teams are responsible for an increasing number of suppliers, consequently increasing the probability of doing business with suppliers that fail to perform to their potential. That does not mean that perfect supplier performance is an unrealistic goal. There are certain ways you can work with your suppliers to get closer and closer to that goal. Supplier development is one way of working with a supplier to get what you need.

There are relationship management approaches for working with suppliers. Supplier development is just one of them. To truly understand supplier development, it is helpful to know the other approaches of working with suppliers.

The 6 Steps of Supplier Development:

  1. Identify categories for supplier development
  2. Identify suppliers for development
  3. Form a team
  4. Engage suppliers’ top management
  5. Identify specific development projects
  6. Manage the projects using project management best practices

Identify categories for supplier development:

It’s not uncommon for an organization that spends $2 billion on “stuff” to have 8,000 suppliers. If you break that into categories, it’s in the hundreds of categories. You cannot develop 8,000 suppliers. You cannot even develop suppliers in hundreds of categories.

This first step is deciding which categories are most important to you. An odd expression in American English is “There is more than one way to skin a cat.” If you’re not from the USA, you may think: “Why would Americans want to skin a cat?” Thankfully, we don’t know anyone that has skinned a cat. But the expression means that there may be more than one way to accomplish something, and no single way is necessarily the right way. That’s often the case with many procurement processes and is certainly the case with identifying categories and suppliers for supplier development.

The following approach allows you to identify suppliers for development simultaneously, thus taking care of Steps 1 and 2 in one fell swoop.

First, think back to the four relationship management approaches for working with suppliers:

  • Supplier collaboration
  • Supplier management
  • Supplier rationalization
  • Supplier development

The way that these terms are used to describe procurement best practices, you might assume that you should be using all these approaches with each of your suppliers. That is not the case.

There are two variables that should influence which relationship management approach you should take with a supplier:

(1) Level of sophistication of that supplier

(2) The supplier’s materiality to your business. A supplier’s level of sophistication can be either sophisticated or unsophisticated and its materiality to your business can be either tactical or strategic.

That leaves four possible combinations to form a supplier stratification model. And, for each

combination, there is a different relationship management approach you should take.

Identify suppliers for development:

Once you identify your critical strategic supplies, you need to identify the critical suppliers within those categories. First, not every supplier needs your development. Some are just fine. Consider multi-billion-dollar international companies. They have full departments of people involved in internal development within their own ranks. Focus on the few suppliers that give you the highest potential for improved results.

Form a team:

One of the rules of supplier development is this: You can’t 􀂂x everything yourself. You need other people. So now you have a supplier that you want to develop. The next step, again, per the white paper Avoid The Pitfalls in Supplier Development, is to form a cross-functional team. The team is cross-functional because you, as a specialist in procurement, do not know everything. It’s also cross-functional because it is going to be a lot of work. You’re going to need resources beyond just yourself. How you go about developing a supplier is a lot like how you develop an employee. And there are lots of leaders who have different styles of developing employees.

Engage suppliers’ top management:

The next step is to meet with each supplier’s top management. One of the ways of getting around the interpersonal skill challenges of having cross-functional team meetings is to go up to a more senior level and explain the workings of the relationship.

A similarity between negotiation and supplier development is that you must watch your size versus a supplier’s size. If you’re with a big multi-million-dollar corporation and you demand that a small and under-performing supplier engages in supplier development with you, because your business is so important to them, they might just say, “You got it. I’ll fix it. I’ll invest in this. I’ll do all this work.”

But they may not have really thought that commitment through, and the costs could put them out of business. If that happened, you haven’t solved anything. Think about that as you’re going through the process. 

Identify specific development projects:

The next step is to identify, with each supplier, the development project itself. Go through your supplier data, whatever you have, and figure out the one project that could produce the biggest return on investment for your organization.

  • A tip: Projects that are too complex often fail. Simple as that. Conversely, smaller projects that have moderate complexity and involve moderate effort but yield big results let you accomplish more in the long run. Why? Because after you’ve proven a couple of successes using supplier development, the next time you propose one of those more complex projects, you have more experience. Your organization is more experienced with supplier development projects and they believe that these projects can be consistently successful. When choosing your projects, be careful. Do not bite off more than you can chew.

Manage the projects using project management best practices:

One thing you need to do is to de the key performance metrics. The classic “SMART Goals” model should be consulted as you define your metrics. If you are unfamiliar with the acronym SMART, those letters stand for specific, measurable, attainable, relevant, and timebound. And those are five characteristics your goals should have so that your metrics can reflect your progress towards your project goals.

Another thing you need to do is to agree with management on the scope of the supplier development project and the resources that will be dedicated to it. This is best done using a document called a “project charter.” If you have not used a project charter before, you should not create one from scratch. You should base your project charter on a successfully used project charter or an authoritative template.

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