EXPERT VIEW / BEYOND COMMERCIAL VALUE
EXPERT VIEW
Even just the act of engaging suppliers and asking for their input sets good behaviour and the right tone for a beneficial partnership from the start. It also means they are more likely to be aligned to your objectives and therefore easier and better to work with. And while it’s useful to have key performance indicators (KPIs), organisations must remember the value of measuring them. Most are poor at doing this and fall into the trap of applying their perception of performance rather than basing it on fact. This is generally counter-productive, typically leading to retaining under-performing suppliers or punishing good ones. It also means both the buying and supplying organisations lack vital evidence of joint success. Proven wins can drive them forward together and help to support the business case for further investment into their relationship or supplier management programme.
together to eliminate use of paper or plastics, or cut carbon, make sure you don't treat it simply as a flavour of the month. If you’ve moved the needle to a new place try to keep it there. Brand value can be significantly enhanced by being known for a product or service that is not only excellent but also environmentally and socially responsible. Brand value can also be boosted by your very treatment of suppliers. For example, by increasing diversity, the use of small businesses, veteran companies, start-ups and more or through the social value delivered to a community. However, it can equally be lost – and lost overnight – through poor behaviour. An example of this is when, in 2013, some suppliers to Premier Foods complained to The Grocer magazine that the company had written to suppliers asking them to invest in a ‘mutual investment programme’. Premier Foods said as they gained so too would suppliers. But the story later hit the national press. Premier Foods was accused of effectively demanding suppliers ‘pay to stay’ and the resulting publicity hit the company’s share price. It was the first high profile example of a supplier management strategy directly damaging the company’s overall value. Companies should never forget to be good corporate citizens. And this applies not only to how well they treat suppliers, but also how they support them when they uncover problems. In the past, if modern slavery or child labour was discovered, for instance, most companies would walk away from the supplier perpetrating it. Now, best practice is to instead work with them, educate and support them to make changes, such as setting up a school for workers’ children. Just identifying the risk – or pleading ignorance – is not the answer. Protecting brand, reputational and shareholder value no longer means dumping problem suppliers, but enabling them to be better. And this means businesses need to look at the ‘protect’ part not as a cost to their business but instead as a way of shielding corporate value.
Grow
Now that you and your key suppliers have chosen some social and environmental goals to work on together to generate broader value, and set KPIs to motivate success, you can move to value delivery that goes above and beyond the contract because you both believe in the greater good. Successful continuous improvement requires a joint process between the company and their key supplier. Performance should be about ongoing improvement and using data to both retain and grow value. You should be constantly reviewing the facts to find ways to do things better. In a successful partnership data is shared and examined together and both parties consider how they can improve. Conducting 360-degree relationship reviews is an excellent way to help grow value together. It leads to clear, honest and open communication that can remove bottlenecks on either side and generate further ideas. Real value comes when both measure performance or agree upon a method and manner for doing so, and review it together with a view to being better. The relationships you have with your key partners are vital throughout all three stages of discovering, retaining and expanding value. Examine the reality of your achievements together and continuing to build on your success with joint business and collaborative working plans and through a thorough supplier management programme.
sources of value. Businesses strengthen their brand value by aligning with the right supplier partners and carrying out focused activities (see diagram on page 19). Not every activity will impact revenue, some will be about pleasing employees or helping your company to tell a good brand story – perhaps about partnering with a charity, boosting diversity and inclusion, or generating social value. These are all growth areas for businesses because we’re now in the age of giving back and all of these value-add activities sit within procurement’s purview.
and harness innovation. The classic model of supplier segmentation is a triangular structure that has the smallest number of key partners at its peak. The largest chunk of the wedge contains typically the more transactional who can be managed with the greatest degree of automation. Supplier treatment strategies work in reverse, with the largest amount of time, attention and resource dedicated to the few at the top. ‘Incubation’ should be incorporated as one of the treatment strategies. It could be a formal process to collect and evaluate new ideas from key partners. Or, it could be about protecting small but important suppliers by giving them the support they need – for instance around payment terms or a less arduous on- boarding process – to allow them to focus on growth. The process of finding new sources of value needs to be much more coordinated than it typically is. If you want innovative ideas from your suppliers, you need to communicate what you mean by ‘innovation’ or other types of value you care about. You next need to set up a process to capture good ideas, evaluate them and feed back. Part of this process, which helps procurement departments to measure and report to their business on the value they bring beyond financial, is collecting data. For example, how many good ideas were generated per quarter, what number came to fruition and what was the material impact? These metrics are vital to demonstrate the impact of work done and support a business case for further investment – time and money – into finding new
Keep
Once you’ve identified what’s important to your organisation beyond only financial value, you need to work to keep a focus on it. Too often people concentrate purely on contract management, which is an administrative process. They can get into a very granular level of detail when it comes to reviewing service level agreements (SLAs) and claiming back service credits if a supplier slips up. Good supplier management is about collaborating with partners, not extracting financial penalties from them. Instead of signing up to SLAs that apply the threat of punishment, why not set a list of joint behaviours that will help to generate value for you both? Ask suppliers what goals you can sign up to together that will help you both to attain environmental and social goals. Success in these wider areas can add value to both your businesses – as well as wider society and the planet as a whole.
In conclusion
The best supplier management programmes achieve not only direct financial benefits for both parties, but ensure longer-term value creation in myriad ways. Capturing those added advantages is challenging but not impossible. For those that take the time, recording and reporting on these measurements to internal leaders not only makes procurement look good, it can materially impact the value of the company to its customers, staff and shareholders. By working with your suppliers to examine the opportunity for additional forms of value; keeping focused on them; ensuring they get delivered; and protecting any gains you make, you can achieve impact that goes well beyond simply making or saving money.
Protect
Protecting value is about sustaining what you’ve already achieved. It is both about risk management – protecting the hard-won value that comes from building a strong reputation, brand and healthy share price – and ensuring any improvements become business as usual. For example, if you and your suppliers have worked
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STATE OF FLUX
2021 GLOBAL SRM RESEARCH REPORT
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