Only 23 percent of procurement leaders plan to increase the level of supplier collaboration as a lever to deliver value in 2018.1
We know the days of squeezing suppliers for every penny of savings are gone and that procurement teams recognize supplier relationships as being key to success – so why are only 23 percent of procurement leaders planning to increase the level of supplier collaboration this year compared to 26 percent last year and 39 percent in 2016? My hypothesis is that the mandate to “increase supplier collaboration” is easier said than done.
So, in this blog post I’ll focus on the steps you can take now to kick-off your initiative to increase supplier collaboration.
Map Your Approach When Considering How to Increase Supplier Collaboration
Because the idea of collaboration is not cut-and-dry, but varies greatly across projects, people, companies, etc., it’s a good idea to define your approach in a way that helps you stay on track and continuously move forward on your mission. Deloitte recommends the joint strategic planning (JSP) model pictured below.
Shift Your Mindset and Get a Better View
Once you have your plan outlined, there are two major things that need to happen when you’re developing a methodical approach to increasing collaboration with suppliers:
1. Shift to a “shared value” mindset: Most procurement teams are focused on the traditional method of cost savings – reducing purchase price – which really only benefits the buying company. Organizations that are serious about increasing collaboration with suppliers need to focus on the “win-win” approach that generates business value for both the buyer and supplier. 1 This requires a commitment across the business to alleviate the pressure on Procurement to simply save money, and instead empower them to become business partners.
2. Get supply chain visibility: According to the Deloitte CPO survey, a staggering 65% of respondents said they have limited or no visibility beyond tier 1 suppliers, and only 6% indicated they have full supply chain transparency. In order to activate a supplier collaboration initiative, you must have a holistic view across all your suppliers, so you can properly segment and approach them.
Segment Your Supply Base and Include Supplier Motivations
The SpendMatters paper, Leapfrog the Competition by Transforming Your Supplier Relationships from Tactical to Strategic, makes a very solid point: suppliers aren’t created equal. You’re not going to approach your strategic suppliers the same way you approach your longtail suppliers.
The authors of this paper recommend segmenting suppliers not only based on spend, but also by the nature of collaboration, then mapping the suppliers across the risk versus reward spectrum. But here’s the key – don’t just think of it from your perspective, look at your suppliers’ motivations in each situation as well.2 The areas where you see interdependencies between you and your suppliers are obvious areas for collaboration. You’ll also see opportunities where suppliers may be eager for more strategic partnerships that you can develop and instances where you want to remove resources, so you’re not spending time and energy on longtail suppliers that will never become strategic partners.2
Identify Supplier Touchpoints in Processes
Once you know what roles your suppliers play across the entire supply chain for indirect and direct spending, you can also identify where the touchpoints exist between you and suppliers across processes, as these are the areas where you will expand and inject more collaborative efforts. For example, the SpendMatters whitepaper suggests thinking creatively about RFIs to also include requests for innovation to concept new ideas, requests for supplier data to proactively minimize risk and requests for intelligence to understand what capabilities suppliers possess that you can leverage for innovation.2
Make Analytics Your Best Friend
Leverage analytics to further analyze your processes, opportunities and risks across supplier interactions to identify new opportunities for collaboration and reduce bottlenecks. Supplier quality data can show you lead time measures, order fulfilment measures and delivery quality measures so you can gage supplier performance and work to achieve supply chain excellence. Spending data enables you to see how much you’re spending across the entire supply base so that you can funnel more spending to strategic suppliers – aiming to hit the 80/20 breakdown where 80% of your spending is with the top 20% of your supplier base. Predictive analytics can help predict the probability of late payments, so you can look at ways to get suppliers paid on time or even early, like increasing e-invoicing rates, negotiating an early payment discount program or moving certain suppliers to an e-payables solution. The point is – the more you can see about your purchase-to-pay operations using analytics, the more you will be able to collaborate with suppliers. This is also why it’s critical to capture 100% of your financial data in one solution.
Leverage Technology and Solution Providers
Explore tools for supplier management and draw on the expertise of your purchase-to-pay solution provider. And as always, reach out to us at Basware – we’re here to help!
1Leapfrog the Competition by Transforming Your Supplier Relationships from Tactical to Strategic