The former Commonwealth Bank of Australia CPO on the value of supplier management and how strong relationships ensure the “big things sort themselves out” Build trust and be consistent
It’s essential that these critical supply chains are understood, engaged and governed in the right way for the right reasons. For instance, as financial services businesses move into the digital age they rely on external technology providers to deliver their services to customers. The essential functions of a bank may be delivered by suppliers and therefore suppliers become critically important and fundamentally embedded in the strategic business model. How did you navigate the pandemic with your suppliers at your previous organisation? Like many companies, in March 2020 we triggered our business continuity programme. We spent February 2020 planning across our supply chain, examining essential functions; working with our suppliers on a daily basis to ensure teams were safe; to find out how we could support them; ensuring that services weren’t under threat; and exploring options and alternatives should we need them. We already had strong governance models and relationship management in place and suppliers understood the importance of the services we provided to our customers, so we weren’t at risk. It makes for a great case study reminding us of the value of testing continuity plans with suppliers and having relationships with them to work through issues when we need to. So SRM is essential to managing third party risk and resilience? It is fundamental. There are many steps such as risk tiering your supply base and establishing governance protocols. The higher the risk the more comprehensive the engagement should be. In past roles I’ve nominated
relationship managers to look after specific risk components such as regulatory and legislative resilience, to ensure we met prudential standards; modern slavery requirements; and to consider technology risks; and environmental resilience. As part of that, you rely on your suppliers to share their views and insights into what they’re doing and how they are addressing any potential risks, as well as what they’re asking their own suppliers to do. You benefit from having a forum in which they can table concerns and establish remediation to address any issues. Supplier management is a critical part of the resilience of supply chains and it will only become more so as demand outstrips supply and organisations face disruption and delays. You need to consider how you can get to the top of a supplier’s list to get what you need done. What else should people be doing to shore-up resilience? Make sure you have a view of not only existing but emerging risks as well. What are the challenges that could be just over the horizon? That’s where your key suppliers can help because they are closer to their industry and have the inside running on what actions are being taken. Having a robust relationship and supplier management with strong governance enables you to discuss these issues and work through a plan together. Any other advice? Focus on the key suppliers that matter. You can only manage this kind of contact with probably around 5-10% of your supplier base because it can be quite labour intensive. Also consider what technology platforms
can support you in this. A gradient of engagement throughout your supply base is good but concentrate on those that will impact your end customer and resilience and make sure they work really well for you. If you focus on building the relationship, the big things will sort themselves out. Build trust and be consistent. If you don’t have trust, create it. It also doesn’t mean you can only have gentle, collegial conversations with these suppliers. You must have the difficult ones too and it is possible when everyone is clear on the rules of engagement. With the right input these relationships can develop rapidly but they can revert rapidly too. Procurement can play a strong facilitating role both with the supplier and internal business stakeholder. Any common errors? We have discussed risk and resilience but cost is another area where SRM can reap benefits. Procurement can at times become very focused on cost, but cost transformation rather than cost reduction is a far more sustainable approach. That means you’re not just negotiating on a unit rate basis but really looking at the total cost of ownership; including demand and supply; and policy change to drive better and more sustainable outcomes overall. Having good supplier management does this for you. Everyone loves the negotiation phase, but the real work starts in the governance of that relationship, that’s when you actually get the result, otherwise suppliers can simply start clawing back the savings. Getting the key relationships right simply makes good commercial sense.
Karen Sutton has more than 30 years’ of procurement and supply chain experience. She’s held numerous senior positions, chiefly in the highly regulated financial services sector, where she’s been responsible for managing both national and global procurement and supplier risk portfolios ranging between $4.6bn- $7.5bn a year. Most recently she was CPO at the Commonwealth Bank of Australia (CBA), where she ran the global procurement function, managing an annual expense base of $4.6bn and a team of 200 staff. The role involved providing regular updates to the Group Executive, Chair and Board, as well as the regulator on key areas of the supply chain and third-party current and emerging risks. A year ago she set up her own consulting company, Supply Chain Intelligence, which specialises in helping organisations with complex supplier and third-party risk challenges; and she recently joined the board of State of Flux as a non-executive director. Why did you decide to join State of Flux? I really enjoyed working with State of Flux as a supplier and believe that its business model, with its focus on supplier management, aligns with my view of its importance. Effective and strategic supplier management and governance models are critical to the success of any organisation. There’s a big difference between an organisation working with its supplier base and one that gets allocated the best people, achieves optimal outcomes and delights its customer through service delivery. And what better than navigating a pandemic, to demonstrate this on a global scale? What do you think is the general view of supplier management? It’s not nearly as valued as it should be. Too often it is treated as an
administrative task rather than building trust and deepening the relationship with key suppliers. Like any good relationship, you need to work at it. You need support at the right level both within procurement and the wider organisation. It also requires alignment across your strategic supplier organisations. You have to agree on the rules of engagement and both parties have to stick with it to build trust. The moment you drop the ball you’ll find things revert to a classic customer/ supplier model. For it to succeed, it needs to be developed, improved and focused on advancing. Having quality, open dialogue with your key suppliers is essential to achieving that. Can you expand on that? Sometimes advancement means resetting or repositioning a suppliers’ role for the future. For instance, you might be initially embedding a new relationship which then moves to transformational delivery through a strategic partnering model, and finally settles into one that is focused on business as usual (BAU). If the scope is well articulated and both parties have established trust through supplier management practices, then you can focus on optimising the outcomes of your relationship. To get to that point you need rapport, trust and a mature governance structure leveraging open dialogue – it is no longer about key dates, key obligations and key terms and conditions. It’s about understanding what’s important to both organisations. How is value achieved? By being considered a ‘customer of choice’, opportunities will present themselves to harness productivity, innovation and continuous improvement. This comes from those strong working relationships. It could even lead to the opportunity for a different kind of engagement
in the future, such as co-creation or partnering in the truest sense. You need to identify those key relationships and deal with them accordingly. Be aware that as they shift and morph into a different phase in the relationship, others might come in and take over. That’s a mature supplier management model in practice. What fundamentals are required to achieve that? The groundwork has to be done. You need ongoing engagement, to facilitate outcomes and look at issues daily, weekly, monthly, quarterly and annually, according to what’s appropriate. Consider what’s improved, what’s working and what’s coming next. Make sure you give your strategic suppliers a forum to speak; align goals around quality, timeliness, cost reduction and innovation and work collaboratively towards them. How can organisations boost supply chain resilience? One crucial way is to carry out ‘Voice of the Supplier’ research. Procurement doesn’t spend enough time considering if it is a customer of choice. Without open honest communication and feedback from your suppliers you can’t easily determine how important you are to them. I can’t think of one organisation that can run itself end- to-end without suppliers. They should be viewed as a critical part of any organisation’s ecosystem. This must be especially true for suppliers who work on your frontline? Precisely. Many organisations have numerous suppliers who provide services directly to their customer base. If your supplier is at the front end, they represent your brand, and their performance has a direct impact on your profile. This can present a significant risk to your business and its resilience if they don’t get it right.
“Supplier management is a critical part of the resilience and it will only become more so as demand outstrips supply and organisations face disruption and delays”
Karen Sutton, Supply Chain Intelligence founder
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