Why Should You Focus on Managing Your Vendors more in 2019?
Nick Francis Managing Director, Consulting

We cover the main focal points on why it is important to manage your vendors consistently and effectively across 2019. This blog outlines the importance of measuring your maturity, differentiating in areas of strategic importance, as well as looking at the interconnected network of opportunity.

Preface

As the business world settles into the 4th industrial revolution or as some call it Industry 4.0, characterised by a fusion of technologies blurring the lines between the physical, digital, and biological spheres collectively referred to as cyber-physical systems. It is marked by emerging technology breakthroughs that include robotics, artificial intelligence, nanotechnology, quantum computing, biotechnology, the Internet of Things and many more.

These technologies are disrupting almost every industry in every country at unprecedented rates. The sheer breadth and depth of these changes represent the transformation and creation of entire ecosystems of production, management, and governance.

All organisations are looking to avoid the digitally disrupted category, instead focused on becoming a recognised disruptor in their own right, and so with this rate of change only highly collaborative organisations who are accelerating value creation across their business end to end will win through. Despite this, McKinsey found fewer than 10% could demonstrate systematic efforts on supplier collaboration, a critical part of any end to end business. More importantly, among those who did collaborate, the EBIT growth rate was double that of their peers! Seems a no brainer right. However, like most things, this is much easier to type or say than it is to do.

Allowing you to measure your maturity and differentiate in the areas that are of strategic importance.

Areas such a Supplier Relationship Management, Vendor or Contract Management & Supply Chain Assurance functions are heavily reliant on the experience and quality of the individuals working in these roles and very subjective when considering the quality of a relationship and the level of collaboration taking place. In cases where either there is a single SRM employee or hundreds of people in these roles, how do you measure your current maturity and ultimately drive this up over time with the right blend of people, process and tools underpinned by a robust governance framework and policy?

Segmented supply chain versus a segmented interconnected network of opportunity.

Organisations that have a level of focus on managing their vendors and supplier base will have in place some kind of logical manner to categorise or segment them into groups. These groups will be underpinned by the way the suppliers within the said group will be managed, which is basic supplier segmentation behaviour. These segments or tiers are commonly referred to as 1-5 or A to E and typically related to the amount spent on a periodic basis with the said supplier which is a very blunt way of defining importance to an organisation which should be multi-dimensional. The below groups represents an example of an improved way of segmenting suppliers:

  • Ad-hoc Vendors
  • Operational Support
  • Process improvement
  • Competitive Advantage
  • Strategic partnerships

We typically think of suppliers and vendors as part of an overall chain, especially when it comes to protecting assets in an information security context with suppliers being a common attack vector. This isn’t strictly the best way to think of vendors when looking to optimise our business through highly collaborative means for competitive advantage. In this situation, it’s much more appropriate to think of your supplier and vendor base much like an interconnected network. It’s quite common for your suppliers to be in partnership with a competitor and in some cases your potential customer organisations alike where from a better-integrated account and relationship insight can be derived.

In this day and age, it’s not not unusual for a supplier to have the ability to introduce their client to their other clients to potentially form partnerships or alliances or to do business with directly. If you don’t allow your own organisations’ strategic ambition and goals to be clearly understood by your suppliers in the network how can you expect them to increase the value that they offer to you as a customer. At the end of the day, it’s nearly as important for them that you stay in business and profitable otherwise they, in turn, will lose revenue, this is strengthened the more important the segment that the supplier resides in.

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