Introduction to topic
In this two- part article, a broad overview to frame working Strategic Vendor Management shall be covered.
In part One we dealt with what defines SVM, why you need it and do you need it. In the second part of the topic, we shall review the components of the actual SVM Framework.
Frame working a SVM methodology
A pre-determined logical approach is required for Procurement leaders who want to build mutually beneficial business relations with vendors to exhibit partner-like traits as part of their agreed deliverables and metrics.
A simple coordinated, systematic, three-step methodology assists management in achieving maximum value from their vendor bases:
Step 1: Developing a tailored Master Vendor Profile
Build a holistic insight of each vendor and what they deliver to your organization and how important they are to your supply chain. This is the vendor relations management programme that entails the identification, collection, aggregation and presentation of the vendor profile, performance, and key market data.
There are five principal subcomponents to concentrate on:
• Create a master vendor profile (MVP) that provide relevant market, business stability, value importance, and performance data specific to each vendor that is supported by:
Developing standards and management controls by which you can benchmark expected vendor performance and effectively manage the data inputs about each vendor.
Build dashboards that provide near-real-time data on tactical performance issues most relevant to understanding a specific vendor’s performance and weak points.
Use quarterly scorecards to provide a regular update and objective analysis of the most relevant and strategic aspects of the vendor relationship. These can conversely include a 360-degree review, which facilitate a partner like relationship whereby the vendor provides a customer assessment to you with recommended improvement actions of your own Supply Chain processes. These can prove a very valuable external and free insight on your own operational processes and points of strength or improvement.
Developing Mitigated vendor risk and contingency plans annually, or as often as required by policy or circumstance. Plans must include a holistic overview of a brace of risks and the relevant actions taken, or necessary, to reduce residual risk elements and respond to risk events associated per vendor on an individual, national, and international basis.
Research and analyse the contribution, impact, and consequences of a Vendor Development Programme within your Procurement Functionality. These should however be considered, planned, implemented, and rolled out with extreme caution and hard -headed logical savvy.
It is vital to ensure reliability of the data input. When confident with the data gathering and reporting mechanisms, you are ready to analyse and look for trends that contribute to maintaining each tailored Master Vendor Profile.
There are myriad technological solutions which are purported to enable SVM dashboards and score carding. These systems can be used to gather and track supplier performance data across sites, business units, and/or regions. The benefit is a more comprehensive and objective picture of supplier performance, which can be used to make better sourcing decisions, as well as identify and address systemic supplier performance problems. It is however important to stress that SVM software, while valuable, cannot replace experienced human judgement and management skills. Therefore, it is an effective tool to assist and compliment the manager, not substitute them.
Step 2: Developing Governance Protocols
The second step is creating a governance framework for how the collected data is used. Ideally, this is a schedule of review meetings that govern the SVM Programme. Typically, the schedule of meetings and reviews include all or some of:
• Monthly one on one executive meetings between Procurement and Vendor to discuss and assess operational performance against benchmarked SLAs and metrics and remedial actions on past performance issues.
• Weekly executive meeting with executives of affected internal stakeholders to ascertain tactical performance and resolve issues that may have arisen between Procurement and various internal stakeholders.
• Bi -annual Supplier summits, which bring together representatives of all strategic suppliers together to share the company’s strategy, provide feedback on its strategic supplier relationship management program, address concerns, and solicit feedback and suggestions from these suppliers.
• Quarterly relationship audit focused on evaluating the long-term strategic value of the relationship, as opposed to the tactical aspects of the monthly reviews.
• Internal biannual vendor relationship risk appraisal that updates and refine potential inbound vendor risk, mitigation plans, and report on medium- and long-term risks pertaining to the relationship.
• Annual executive review to ensure alignment between both the vendor’s goals and your own departmental and organisational goals, as well as a time for senior executives on both sides to build trust and share ideas.
• Joint Planning meetings, where relationship leaders and technical experts meet to discuss joint opportunities, potential roadblocks to successful collaboration, activities and resources required, and share strategies and relevant market trends. Joint business planning meetings are often accompanied by a clear process to capture supplier ideas and innovations, direct them to relevant stakeholders, and ensure that they are evaluated for commercial suitability, and developed and implemented if they are deemed commercially viable.
• Operational business reviews, where individuals responsible for day-to-day management of the relationship review progress on joint initiatives, operational performance, and risks.
Step 3: Internal Buy-in Commitment
You have now ensured that maximum effort has been given, relating to building quality information inputs and review processes relating to the vendor. It is now time to concentrate on obtaining buy-in commitment from your internal stakeholders such as manufacturing, sales, technical support, executive management or whomever else qualifies as a senior internal stakeholder.
To help build buy-in from internal stakeholders, build standard programme that can be used consistently across all providers. Kick start the process with one or two medium importance vendors. Use these pilots to evaluate the best timing, deliverables, and participants, which may vary between vendors and internal stakeholders.
When the process is refined and internal stakeholder buy in is forthcoming, expand it across all medium importance vendors, and expand again to include strategic value vendors. A slow measured expansion will allow for fine tuning, demonstrate the value of the process, gain internal stakeholder trust and commitment, and give you time to communicate it to stakeholders, who should be drawn from both sides of the table.
Article Wrap up
Developing a SVM Programme is vital to a healthy Procurement infrastructure and has a direct and critical influence on medium- and long-term organisational planning. Any Strategic Vendor Management Programme must be underwritten by a logical workable framework methodology that guides and supports it. This framework should cover all aspects relating to vendor relations and development management, and most importantly the value that each vendor makes to your supply chain.
Karl Furrutter is a Procurement and Capital Recovery specialist who operates in the consulting and interim management environment.