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30 March 2017

The simplest steps to improving your supplier relationships

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More and more service organizations are switching to a more management-focused role. This makes it increasingly important to get collaboration with suppliers on the right track with clear agreements and dialogue about progress. What is the best way to go about this?

Good supplier management

Good supplier management perpetually safeguards the quality, stability and continuity of services while also lowering costs. Good supplier management is also challenging, because not all suppliers are equal. Some visit sporadically, while you collaborate so closely with others that they seem more like a colleague than a stranger on location. Mapping these differences between suppliers gives you a clear picture of how you deal with each one.

If you want to practice good supplier management, it is important to first of all have clear insight into your end users’ needs and expectations – and therefore the desired services. These can be mapped using a customer satisfaction survey. You can translate the results into a service catalogue and create a list of requirements. This makes it easy to select the right supplier for the services you must outsource. The customer satisfaction survey can also lead to adjustments in the service catalogue if the service as it is currently delivered does not meet the customer’s needs and expectations.

It is also important to look into whether agreements made in contracts are honored. You can do this with reports and regular meetings with your supplier. A good partnership with your supplier helps the both of you take (small) steps towards proactive improvement. Moreover, awareness of the supplier’s role and choosing the right supplier for a certain type of product or service are an important aspect of supplier management.

Targeted instructions for suppliers

The Purchasing Portfolio Model, a matrix designed by Peter Kraljic, lets you classify the various products and services and analyze the role of each supplier within the organization. Classifying suppliers grants insight into the way you can best work with your suppliers and how you can give them targeted instructions. Eventually this leads to better and more professional services for your customer.


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Which products and services do you offer?

A first step towards more targeted supplier management is determining which types of products and services you offer your end users. Kraljic defines four categories: leverage items, strategic items, non-critical items and bottleneck items. Some products and services have a profound effect on your organization’s financial results, others less. And for some products and services it really matters when and to whom they’re supplied.

Leverage items can be delivered by various suppliers and are relatively expensive. They are standard products, such as office furniture and hardware. The market has plenty of suppliers for this type of product and service, making the supply risk low. Every product and service category requires a different approach. With leverage items  you are often in control thanks to the strong competition between the various suppliers. Good service can help a supplier stand out, but the price can always be a good reason to switch.

Strategic items are mostly customer-specific, are often relatively high-value and are only delivered by a select number of suppliers. As a result, changing suppliers often has a bigger impact. Think for instance of software, but also access or network management and data services. With this type it is important to safeguard the quality of the products and services. This is best done by entering into a partnership with your supplier and creating mutual trust. This encourages the exchange of information and the mutual willingness to help. Increasing the supplier’s involvement in both the tender phase and the implementation phase is advisable. It is also important to use functional specifications to clarify the exact wishes, requirements and expectations for both parties.

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Non-critical items are often low-value and you have access to several alternatives. Most costs stem from the product’s order and supply process, instead of the actual item itself. Delivery efficiency is very important. With non-critical products it is advisable to lower the number of suppliers per product group to simplify the ordering process. You can do this by offering the option to order online, and reduce the number of invoices by making agreements about a monthly payment using a cumulative invoice. It is also good to buy in bulk, as this benefits the price and delivery. With so much competition between suppliers for this type, you can really reap the benefits.

Bottleneck items are often low value but can only be delivered by a very small number of suppliers, or even just one. This makes for a high delivery risk. Think of mail delivery, or certain software. This can cause relatively high prices, long delivery times and poor service. With bottleneck items the main concerns are reliable suppliers and timely delivery of products and services. The price is less important. With this type of product and service it is important that you look for alternatives so that you minimize your dependence on such ‘unique’ suppliers. You could do this by making specifications for a certain product or service more lenient.

Classifying your suppliers

The categorization of products or services can differ from organization to organization. When it comes to cleaning, hospitals do not have the same requirements as office buildings. This means that the two organization types will classify the supplier for cleaning services differently. Legislation, such as inspections and tender obligations, can affect the classification. So it is of utmost importance to understand your organization’s position and your end users’ wishes and expectations before you can place the products and services – and therefore the suppliers – within the matrix.

This classification gives you an idea of the time and energy you should invest in the relationship with the supplier and the monitoring of agreements and performance. The method, frequency and depth of the supplier assessment is entirely up to you and depends on the type of activity and the type of supplier. When dealing with non-critical items it is not unusual to measure against standard matters such as the number, the price and the invoice quality. However, with strategic items it is advisable to also judge the supplier on the number of malfunctions and complaints, the customer satisfaction, the level of supplier involvement and the quality of the delivered services and products. Do not just focus on the negative during periodic evaluations: make sure to pass on compliments too. This motivates all parties involved.

A partnership

In order to practice good supplier management it is important to know your suppliers well. It is this knowledge that you use to determine how to deal with this supplier, and how much energy to invest in the partnership. This lets  your suppliers make more targeted adjustments if necessary, contributing to a better and more professional service for your customers.

Want more? You can also read our e-book on service integration here or check out what our colleagues at Worcade are up to.

 

Elisette Daams



Elisette Daams, Service Management Consultant

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