Supply Management – The 7 Steps to Getting Value From Your Key Suppliers

In supply management you get value from your key suppliers by agreeing a purpose for your relationship with them and then translating this into objectives, targets, measures and specific actions that deliver that purpose. If you don’t do this then their failure to deliver real value either goes unnoticed (and so operational problems are never solved and there is no innovation) or at best is informal and unstructured and therefore never delivers.

To get this value you need a process and this article explains the seven steps in such a process.

Step 1: agree a purpose for the relationship. A client of mine and one of their key engineering services suppliers agreed that the purpose of their working together should be to create a relationship that continues to deliver value to both sides. This makes it a mutual strategy and one that continues into the future.

Step 2: write a mission statement based on the purpose. The mission that then flowed from my client’s purpose with their supplier (abbreviated here for simplicity) was for each party to be first choice for the other in commercial matters (for example the supplier bringing new ideas and innovation to the buyer first).

Step 3: set objectives based on achieving the mission. Three objectives were agreed that supported their mission (to identify gaps in the supplier’s service offering that the buyer wasn’t commissioning; to reduce the cost for the supplier in bidding for work from the supplier; and to start open book costing and activity based costing so that the true cost of providing the service could be identified and waste eliminated).

Step 4: develop a strategy for achieving each objective. In my example, one strategy was to extend the range of services it offered my client and start a process of early supplier involvement in setting project briefs that they bid for.

Step 5: decide how you will measure the progress of these strategies. One measure my client and their supplier agreed was the percentage of the supplier’s range of services that my client used in a year. Another was the cost of bidding for new projects.

Step 6: set targets for the measures you have just agreed. For the measures just described, the target for the first measure was 60% of the supplier’s services used in the following year and for the second measure that bid costs should be less than 10% of the value of the contracts for which they bid.

Step 7: develop improvement initiatives that will deliver the targets. Initiatives are delivered by cross-functional teams from both sides assembled for that specific project and then disbanded when the project is completed. The projects are the glue that holds the whole process together and are the means of achieving value for both sides (because they are linked to the objectives, mission and purpose of the relationship).