Vendor Relationship Management
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Categorizing Suppliers
Strategic supplier management involves first categorizing suppliers by strategic importance. This is normally done by spend with supplier and a second factor usually aligned to strategic objectives.
KPI's
Supplier Key Performance Indicators (KPI’s) aligned to specific objectives, need to be measurable, are then developed and communicated to the suppliers as part of the service level agreement. KPI’s can be categorized as:
Strategic
Operational
Financial
Service
Supply Chain Agility and Responsiveness Through Collaboration
Modern supply chains require greater flexibility than ever which means the ability to adapt to sudden changes in demand and short product life cycles. Where once a supply chain was a pipeline of inventory of the same product being pushed to market; the modern supply chain does not carry inventory but rather information. The carrying and sharing of information between customers, suppliers and suppliers to the suppliers enables planning to the same objectives and greater responsiveness to changing customer desires faster than before. Today the customer is dictating what they want as opposed to buying what the provider has to offer.
So how do we make supply chains more responsive?
The first is the sharing of information through collaborative Planning Foecasting and Replenishment otherwise known as CPFR.
- Supply chain efficiency can be improved through collaborative planning as it develops synchronization and a synchronized supply chain is one continuous network as opposed to a series of islands. (Christopher; 2005)
- Developing synchronization requires all strategy, decisions and performance measurements be made for the benefit of the entire supply chain as opposed to separate organizations. (Helms, Ettkin, Chapman; 2000)
- The sharing of information among all organizations enables each to plan capacity and inventory based on the same data. (Chopra and Meindl; 2010)
Supply Chain Agility and Responsiveness Through Collaboration
When organizations within a supply chain plan independently, resources and capacity will not be aligned creating bottlenecks in some areas and over capacity in other areas. (Chopra, Meindl; 2010) This affects the ability of the supply chain to be responsive to customer demand and also affects the overall profitability of the supply chain. The benefits of a collaborative supply chain are:
Increased responsiveness within the supply chain through increased availability of the correct product;
Optimized inventory levels as organizations do not build inventory in defense of inaccuracies therefore reducing the inventory levels throughout the supply chain;
Greater product availability as organizations are able to provide more of the correct product in the distribution channel as inventory dollars are not allocated to slow moving products;
Greater profitability for the supply chain due to higher revenues from reduced lost sales and lower operating costs through inventory, expediting fees and obsolescence costs.
Much of the benefits come through eliminating the Bull Whip Effect on upstream organizations as dramatic changes in demand will decrease reducing distortions and increasing confidence from upstream suppliers. (Chopra, Meindl; 2010)
A synchronized supply chain is best planned from the customer back through the supply chain where the customer demand data and forecast is shared among all organizations. In turn, this leads to greater responsiveness and greater overall profitability through increased revenues and reduced risk and operational costs as organizations are better equipped to accommodate sudden demand changes and shorter product life cycles.
Leading Practices
Strategic supplier management involves first categorizing suppliers by strategic importance. This is normally done by spend with supplier and a second factor usually aligned to strategic objectives.
Segmentation of supply base into strategic and non-strategic vendors.
Pre-qualification of strategic vendors based on vendor capabilities and strengths.
Implementation of a formal vendor certification, performance tracking and recognition program.
Classify vendors through strategic importance, spendcategory characteristics, size of spend and sophistication of capabilities.
Supplier self-service for invoicing and standard inquiries performed via web-based tools.
Pre-approved contract templates and terms. Integrated contract management system.
Supplier relationship management process addresses supplier contract compliance based on segmentation of the supply base (i.e. strategic versus commodity suppliers).
Intensive communication, internally and with suppliers, of expectations and responsibilities throughout the lifecycle of a contract.
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