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Hurt, help or hero? How to define and get more out of your most important suppliers

CONTRIBUTION BY JONATHAN O’BRIEN – AWARD WINNING PROCUREMENT AUTHOR

Supplier Relationship Management (SRM) focuses on unlocking value from your supply base.  However, to achieve that, you need to identify which suppliers are the most important to your business. 
 
If you can get this process right, you can be confident in knowing that you are directing precious resources to where they will have the greatest impact.  Get it wrong, and you could find yourself missing key opportunities and being at risk of wasting time and energy in the wrong places.
 
You might think that it’s easy enough to identify the most important suppliers. But the reality is that this can sometimes be one of the most challenging parts of SRM.  You can easily find yourself leaning towards suppliers that you know more about, or suppliers that you have had contact with most recently, or indeed the suppliers who have the biggest contract. So it’s critical to take an holistic view of your suppliers and understand what they bring to your company.
 
Defining segmentation
To help you define who is or isn’t important, you first need to look at segmenting your supply base.  To do this, you will need to apply a set criteria to determine why these suppliers are important and what sort of intervention and relationship would be necessary or beneficial.  
 
There are many factors which drive supplier importance and which could be used as criterion and the basis for segmentation. These might include: 
  • Risk
  • Spend
  • Criticality or business importance
  • Future opportunity
  • Sustainability
  • Ability to innovate
  • Market difficulty for the key areas of supply
  • Ability or inability to switch suppliers easily
  • Proprietary or differentiated nature of goods and services
  • Alignment with future goals
  • Culture, style and ways of working
  • Degree of interest and willingness from the supplier
  • Nationality or prevailing religion
  • Alignment with business ethics, beliefs and policies
  • Established relationships and history of doing business (especially relevant in Eastern and Middle East culture)
  • Existing obligations or contractual commitments
  • Geographical locations
  • Distribution channels
  • Uniqueness of knowledge or know-how held by supplier
  • Affiliations, partnerships, group companies, interests held by key stakeholders
  • Accreditations or compliance with regulations
  • Customer or regulatory mandates to use specific suppliers
Key to the segmentation process is keeping your company’s operational goals front of mind when selecting the criteria. For example, if one of the business objectives is to be a pillar of sustainability in everything you do then sustainability andalignment of ethical principles and policies are key to helping you decide which suppliers are important.  
 
Similarly, if you need a particular technology or innovation to help you grow market share, but don’t currently have access to it through existing suppliers, then ability to innovate would be a key criterion to be applied to both existing and potential new suppliers.  
 

Hurt, help or hero?

At the simplest level, there are three reasons why you might need or want supplier intervention – and that is when a supplier could either hurt us, help us, or be a hero for us.  
 
For example, a single-sourced supplier upon which you depend presents risk should it be unable to supply. This is a supplier that could hurt you, say, if it ceased trading. Therefore, your approach could be to conduct ongoing risk management and get close to them to ensure you are not taken by surprise.
A ‘Help’ could be a supplier that has some ability unlock greater value.  If you can work together with a key supplier to speed up how long it takes to respond to a requirement, this might increase your customer performance levels.
 
Heroes are the suppliers that can make a dramatic difference to your organization. For example, a software supplier that has a unique platform or capability that could really enhance your offering might be a supplier with which you can collaborate to develop something new that would bring competitive advantage.   
 
So next time you need to segment your supply base, here’s some simple advice.  Why not consider which suppliers couldhurt, help or become a hero to help you determine the level of importance of each supplier?  This is a quick way to get you started and will provide the basis upon which a more detailed set of criteria or rules can be developed.
Jonathan OBrien

About Jonathan O'Brien

Jonathan is the CEO and a founding member of Positive Purchasing. Jonathan has over 25 years’ experience of working with household name companies around the world to help transform procurement capability. Jonathan works with executive teams to shape and implement winning procurement strategies, is an inspirational trainer and trains, coaches and develops procurement teams to perform and realize their potential. Jonathan leads the team at Positive Purchasing to develop the thought leadership and practical tools to help transform procurement capability worldwide. Jonathan is an award-winning author of procurement and negotiation books, he is an accomplished broadcaster and writer and likes to paint, cycle and swim.

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