Adopting a Supplier Centric Approach
Driven by events at the beginning of the decade, Procurement’s mandate has continued to expand rapidly, as the shift from cost savings to value creation and collaboration gathers pace. Establishing true partnerships has brought the subjects of supplier centricity and customer-of-choice sharply into focus.
Being supplier centric means not treating suppliers as a commodity but setting them up for success and to do their very best. This will, in turn, be beneficial for everyone. However, all suppliers are different, and Supplier Experience Management (SXM) is not a ‘one-size-fits-all’ approach. It is necessary to view the situation from their perspective in order to understand their pain points, and then remove friction. This sits right at the heart of the supplier-centric philosophy, which underpins the SXM framework.
Amy Fong, Vice President of Everest Group, explains, “Building supplier relationships, especially with your most strategic suppliers, but essentially all the way along the process, is critical to business success and customer satisfaction. You have to understand that there is no success for you unless that success runs all the way through,” she claims.
The article will discuss and discover:
- What is supplier centricity?
- A necessary mindset shift
- The importance of leadership buy-in
- Creating a mandate for change
What is supplier centricity?
According to Costas Xyloyiannis, CEO of HICX, the first and most important mindset shift that needs to take place is the acknowledgement that all suppliers, rather than just the strategic few, should have access to a one-to-one style relationship. This means that the organization is able to ‘put itself in the shoes of all suppliers’ and is able to consider ways of removing friction on an ongoing basis so that suppliers are in a position to deliver the best outcomes.
This is frequently a challenge for organizations due to the complex nature of supplier relationships. While Procurement remains the expert in terms of the contracts negotiated with suppliers, there are many other aspects to an overall relationship with a supplier. The entire process might involve, and is not limited to:
- Risk assessments
- Performance-related activities
- Health and safety or innovation initiatives
All those areas could involve different departments, different requirements, different processes, and different points of contact at different times in the relationship. While each is effective in its own right, the view from the supplier side may not be one of a joined-up, coherent or logical experience.
Supplier centricity occurs when internal teams are ready to work cross-functionally so that the relationship with suppliers is seamless throughout the entire lifecycle of the relationship. The responsibility goes far beyond the remit of traditional procurement activities and has to be embedded within the corporate culture and all aspects of the business.
Robert Bonnar, Senior Global Procurement Director at BP, agrees with this. “If you’re best in the world and you’re buddying up with the supplier, being as nice as you possibly can to them, and the rest of the company are treating them like the enemy, then you’re never ever going to manage to build a winning supplier centric approach,” he points out.
A necessary mindset shift
Companies that wish to adopt a supplier-centric approach must switch from a functional-led view of the relationship to a holistic, end-to-end view. Leadership teams must make it their goal to make processes simpler and better, not just for Procurement, but for the whole company and its suppliers – and to see suppliers as an extension of the organization.
Depending on the industry, 40%-70% of revenue is spent on suppliers – which is seen as a cost. Organizations must shift their thinking to recognize that, while it is a cost, they must think of it as an investment as well.
Part of forging a route forward will be when companies start to define clearly what ‘value’ means for them, recognizing that it is going to be different for scenarios, for different organizations and for different categories of spend. However, what is becoming wholly clear, is that there are better ways of deriving value from relationships and partnerships that can improve the ROI for the business, than simply focusing on saving 5% of a contract negotiation.
Amy Fong, in a webinar on Elevating Supplier Experience, states “The aim is a shift from the mindset of, ‘What can I as a customer get out of the interaction?’ to ‘How will both parties mutually benefit from interactions?’”
The importance of leadership buy-in
Ramit Mahajan, Head of Supply Chain at Henkel, believes that the mindset shift needs to be driven by the leadership team. “I would say change definitely begins at the top, once senior management is focused and once the purpose is clear that we want to go for a comprehensive supplier experience, rather than just a transaction-focused experience,” he states.
This is a typical change management exercise in which concrete actions are required to be taken in the direction the company wants to move to. Some may be more reluctant than others, especially those where leadership is focused on the traditional approach and traditional working methods of having a transactional rather than experience mindset.
In case the leadership team is not convinced and is focused on the traditional approach towards suppliers, an evidence-based approach of past successful supplier experience efforts and practices are the best way to prove to them why it is beneficial for everyone to adopt Supplier Experience Management. For example, as their main focus is probably going to be on cost, presenting the savings SXM can generate might be a reason they will open their minds and consider it.
“Try to build that supplier experience and then you can present to your leadership what you’ve done and all of the good outcomes it has generated. It may be additional savings, it may be how you have secured other stock or helped other teams by building these good relationships. But I think showing them is the important part and that is how you can also build that internal trust with your leadership,” adds Charlotte de Brabandt of the Institute of Supply Management (ISM), who speaks from experience.
Without this change driven by leadership, procurement leaders may feel they face a tough conflict between cost pressures on the one side and building relationships with suppliers through Supplier Experience Management on the other, which either halts – or significantly slows down – progress to becoming supplier centric and prevents the benefits from being realized.
Creating a mandate for change
The most important task is to create a mandate, to have someone own the entire Supplier Experience Management process. Currently, procurement teams are in charge of suppliers and supply chains. However, in most organizations, there is no single person or function looking after the entire supplier experience. In encouraging developments, a few organizations have now started to appoint such a person, by either re-structuring their departments or creating a new role, such as Head of Supplier Experience.
Once a person within the organization has ownership of Supplier Experience Management, the data-experience flywheel can come into full effect, in which better experiences create better data, and better data can be used to create better experiences. This truly unlocks the value of SXM and solves the decades-old supplier data problem.
“For me, owning a mandate, is a fundamental starting point. Someone has to own the problem in order to fix it,” Costas highlights.
Without leadership, the core problems that afflict both supplier management and consequently supplier data will continue to persist:
- Multiple channels of communication and systems means supplier engagement is lower and data cannot be managed as effectively, becomes out of date or is missing. This could be fixed with a single supplier experience management software.
- There is less transparency internally into the supply chain when disruptive events lead to constrained supply
- It will remain difficult to run new corporate initiatives such as Environmental and Social Governance (ESG) or innovation programs
- Suppliers continue to face higher administrative burden and therefore costs to be passed on as a result of more resources needed to manage communications and adhere to requirements placed on them
Charlotte de Brabandt ponders on such a future, “I wonder who will actually own it in the future and whether there will be a new role within the organization. Having a lead for supplier experience or making sure that the organization is a customer-of-choice is a new variable within the company – it is something that we want to strive towards and that is becoming a new measurement. I think it is definitely a change that’s here to stay.”
To learn more about digitalization of Supplier Experience Management through different systems and tools, and on how to create a strategy visit the Resources page on our website.
This article is based on Chapter 2, The Fundamentals of the Mindset Change, of our Preparing for Supplier Experience Management whitepaper.