'Supplier Management as a Service'
Supplier Management – the Cinderella function?
A client recently said to me that role of a full-time internal supplier manager is a bit like being an anaesthetist in an operating theatre – long periods of routine and boredom with occasional bursts of intense activity when things go unexpectedly and horribly wrong.
Maybe this ‘anaesthetist syndrome’ is one of the reasons why so many organisations treat supplier management as the Cinderella function within their retained organisation?
The evidence is clearly there. Most organisations are still devoting only around 1% of their outsourced spend to supplier management in clear contravention of the advice from independent analysts that this should be more like 2-4% in order to avoid serious problems. In practice, our experience is that all but the largest organisations often treat supplier management as a part-time secondary responsibility which they ‘tack on’ to individuals with other higher priority ‘day jobs’ as their main role.
Unsurprisingly, these organisations are then caught short when this prolonged under-investment in supplier management leads to supplier performance or relationship problems and they find themselves on the back foot - often locked into their existing relationship without the leverage, knowledge, bandwidth or realistic options to either change the behaviours of their incumbent supplier or go to the market and switch to another supplier.
Perhaps you too have had a ‘supplier crisis’ which you can see was down at least in part to insufficient supplier management over the intervening years, in which case you will appreciate the parallels with the panic in the operating theatre as all eyes suddenly turn to the hapless anaesthetist who has been largely forgotten until now?
‘Supplier Management as a Service’ is now a realistic and cost-effective alternative
We think there is a better way which we have pioneered and which has proven to work well for a variety of organisations of different sizes, namely ‘Service Management as a Service’ - SMaaS for short.
With this approach, the required level of supplier management is provided as a flexible service, by a specialist sourcing advisor such as Quantum Plus, rather than you having to commit to a dedicated internal resource.
This is particularly cost-effective because an experienced supplier manager can provide the necessary continuity both with internal stakeholders and with the supplier, while working on a part-time basis during the routine ongoing periods. Then they can increase their time temporarily for the inevitable ‘demand peaks’ that occur – often few and far between - for example when setting up the supplier management and governance framework at the outset, when re-negotiating or re-tendering, or when tackling an emerging problem before it spirals out of control.
The underlying principle is therefore in line with the general trend towards ‘XaaS’, namely that an external sourcing advisor such as Quantum Plus is in a better position than you to achieve the required flexibility, partly because we have multiple experienced supplier managers and partly because the ‘demand peaks’ tend to occur at different times across our multiple client base.
Not only do the bottom-line economics of this approach work better than a dedicated internal resource, but the use of a more experienced supplier manager than you could afford (or motivate) leads to additional insight and effectiveness in driving better supplier performance and extracting full value from the outsourced relationship. The bottom line benefit of this ‘better’ supplier management will appear in the form of reduced supplier cost of service and additional value generated within the business, and will typically dwarf the cost of the supplier management service itself.
With the right external partner, typically an experienced sourcing advisor such as Quantum Plus, this approach has many additional benefits over and above the flexible resourcing model and the more experienced supplier manager available.
Provides a clear ongoing focus on supplier management
Firstly, adopting a ‘Supplier Management as a Service’ approach ensures that there will be a clear and continual focus on supplier management in its own right, and so avoids the all-to-common tendency for an internal supplier manager to focus on the other higher priorities in his or her ‘day job’. Key supplier management actions get deferred and then deferred again until suddenly endemic problems ‘blow up’ and cause a relationship breakdown or an approaching contractual deadline has reared its ugly head, by which time it is of course too late to do much about it.
Maintaining focus on proactive supplier management throughout the ‘quiet’ periods is essential to avoid negative practices and attitudes becoming entrenched on both sides and to your remaining in control of the relationship with the leverage you require to drive incumbent supplier performance and the ability to change supplier if that proves necessary.
Otherwise, given other high priority projects or initiatives which you will have under way, anything transformational seems too risky and the only realistic option (however unpalatable) appears to be to roll forward with the incumbent supplier on pretty much the current basis, even if the relationship is proving a major disappointment and clearly not delivering the full value that is available elsewhere in the market.
In other words, taking your eye off the supplier management ball over the intervening period will leave you effectively ‘locked in’ to an underperforming relationship with your incumbent supplier relationship, often with devastating consequences.
Allows you access to a fit-for-purpose supplier management framework and toolset
Secondly, one of the key success factors for effective supplier management is the adoption and implementation of a ‘best in class’ supplier management framework which drives supplier performance and added value and so maximises the potential benefits available from your outsourced supplier relationship.
Market best practice in this area is developing fast. As an established sourcing advisor with a wide client base and involved in multiple sourcing relationships of all types, we see this first hand every day. For example, Quantum Plus runs a regular Supplier Management Special Interest Group (SIG) which brings together over 20 organisations across industry sectors to share ‘lessons learned’ and to distill best practice in this area.
As a result, we have developed a comprehensive supplier management framework with supporting toolset which we include as an integral part of our SMaaS offering. This framework has multiple elements, which can be adopted on a ‘pick and mix’ basis to customise the right cost-effective and fit-for-purpose supplier management framework for your own organisation and supplier relationship:
- Service management – SLA models including end-to-end and business outcome elements, flexible and progressive service credit regimes
- Wider performance management - balanced scorecard across service, responsiveness, innovation, value delivery, behaviours, etc. – with incentives and penalties
- Value assessment and realisation – quantification of value from multiple value sources, incentivisation
- Relationship management
- Market comparison – benchmarking with ‘teeth’, market testing, etc
- Individual supplier strategy
- Re-negotiation and re-tendering – including ‘step-up’ prior to market engagement
‘Supplier Management as a Service’ (SMaaS) – a better way?
So, if you are like many other organisations, you may well benefit from taking a long hard look at your current approach to supplier management and whether it is delivering value for money in the widest sense.
If you are underinvesting in supplier management in comparison to your outsourced spend, if you do not have a clear focus on supplier management outside of any other ‘day jobs’, or if you do not have a comprehensive ‘fit-for-purpose’ supplier management / governance framework in place, you could well be suffering from ‘anaesthetist syndrome’ and sitting on a supplier crisis that is about to happen. At the very least, you are unlikely to be driving the full bottom-line benefit from your outsourcing relationship.
And before you simply recruit another supplier manager, perhaps you should consider whether ‘Supplier Management as a Service’ (SMaaS) would be a better alternative?
Contact us email@example.com or 01789 201630