Business & Technology Nexus

Dave Stephens on technology and business trends

Targeting Your Supplier Programs

with one comment

Most companies I’ve worked with over the years put their suppliers in 3 buckets:

A) Strategic

B) Important

C) “Who Dat” (aka Shop)

It’s unfortunate many Procurement organizations are daunted by the size of their supply base when designing supply programs. A simple query reveals the steep “relationship drop off” between the masses & those who you really value.

There are several ways to judge value – the most obvious being dollar volume and transaction volume. Add to that a weighting for “direct” vs. “indirect” and you’re almost there. All you need do is add a sprinkling of suppliers whose innovation helps shape your business. And you should know those suppliers by name.

Voila, for most firms we’ve just reduced the supply base from 10-20,000 to a few hundred tops.

And my advice is to aggressively invest on improving your electronic and human interactions with these few hundred strategic firms. For the rest, it’s up to you. It all comes down to real efficiency. If you can reduce cost through automation (truly reduce costs, not just push costs to exception management) then by all means do so.

With a manageable number like a few hundred, go ahead and scorecard. Take subjective surveys. Plan face-to-face visits. Invest in strengthening relationships and securing your supplier’s best ideas.

Improving the speed and “connectedness” of the supplier’s organization with your own can really help. Most types of communication with your top suppliers “is goodness”, the point is to increase it.

Do you have more than 3 buckets, or a completely different distribution of strategic suppliers? Or perhaps other measures to determine who to spend time on? By all means, share them!


Written by Dave Stephens

04/24/06 10:04 PM at 10:04 pm

Posted in Opinion

One Response

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  1. Our Supplier Performance module customers have certainly found the bucketing of their suppliers by commodity profile and amount of spend to be an effective way of phasing the roll-out of a Supplier Performance Management (SPM) program.

    Another area that seems difficult is picking the right performance metrics. This is another decision point where segmenting your metrics into buckets may help to get started: A) Hard Metrics (Objective). These are metrics such as quality, on-time delivery, or lead time; B) Soft Metrics (Subjective). These are metrics such as survey results and relationship assessments.

    The importance of these buckets is that you can start measuring consistent metrics in the ‘B’ bucket immediately for your top suppliers through manual entry or surveys from buyers, suppliers themselves, and other stakeholders. As you expand your program to the ‘A’ metrics, you can selectively integrate the necessary feeds for the appropriate metrics, and simultaneously increase your supply base coverage. We have seen customers with this phased approach get near-immediate improvement with their most important suppliers without getting bogged down in system integration.

    Jim Wetekamp

    04/25/06 3:52 AM at 3:52 am

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