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Supplier Centricity and Supplier Experience Management: What are the benefits?

The Importance of Supplier Centricity in Procurement

SXM Webinar Series with Art of Procurement

The third and final part of the Art of Procurement and HICX live series, hosted by Kelly Barner, focuses on supplier centricity and the benefits of Supplier Experience Management (SXM). Kelly is joined for this discussion by Mary Beth Lang, Chief Supply Chain and Procurement Officer at Kaiser Permanente; and Robert Bonnar, Global Procurement Director, at SHV Energy.

The importance of supplier centricity in procurement

Kelly begins the discussion with the observation that, while supplier experience is very much about the supplier’s view, there is also an internal mindset shift that needs to take place – one which adopts a supplier centric procurement, or supplier first procurement, mentality. She invites Rob to elaborate on the definition of supplier centricity and asks what is required for being able to put a supplier’s experience at the heart of the overall process.

Rob explains, “It’s not just the procurement mindset. I think it really has to be a corporate culture. A corporate mindset, rather than just a procurement mindset. It’s understanding that 50% to 70% (whatever it turns out to be) of your spend as an organization is external – and that you want to make the absolute best that you can of it. That has to be the mindset that procurement is selling to the whole company. An awareness and understanding that this is a cost of ours. There are other ways (and potentially better ways) to get value from certain relationships that can actually improve the total benefit to the organization. That’s the bit I’m excited about when we talk about supplier centricity. So, if you’ve got a separate source-to-pay process and a separate innovation process or a separate strategy process, then you’re missing that centricity. It’s about pulling all of those together and understanding that it’s a landscape.”

Mary Beth adds, “When I think of supplier centricity, and I think of all the work that we did during COVID, it really dynamically changed the way in which we thought about our supplier partners, and the manner in which we relied on them. In March of 2020, the supply chain for healthcare really shut down. But our organization couldn’t.

We really needed to think through with our supplier partners, ‘how do we get necessary PPE for frontline workers and authentic products to make sure all of the COVID care for patients can continue and are safe?’ So, we had a very different interaction with our suppliers and I’m really proud of the fact that, later today, our CEO and many of our leaders will join us in a gratitude session for the suppliers that stepped up with us during COVID.

And time and time again, we didn’t need to reach out to many of the suppliers. They were calling me, and they were calling my staff, saying how can we help and what do you need?”

Mary Beth continues to explain how Kaiser Permanente needed to ensure as much transparency as possible across Procurement – and why the proactive response from suppliers is a result of the culture that guides the organization.

“We have a strong culture. We have 300 plus positions that work with us on product selection, so when we think of our supply chain and our procurement principles, it really needs to be clinically driven first, digitally enabled and customer centric. We need to make sure that we understand, in our supply chain, all of the regulations that we need to comply with because at the end of the day we’re taking care of patients at their most vulnerable times. So, I think that that culture really does permeate through all of our product councils and supply standard teams. We have to do that product selection and that really develops different relationships, very deep relationships, with our suppliers.”

Like the healthcare industry, the energy industry is also heavily regulated, which Rob sees as an opportunity to work in close collaboration with his suppliers in the sector, as he explains, “The regulations, for me, added a dynamic which then actually enabled some really interesting discussions. They’re not too flexible and so, if through the conversations with suppliers, we can actually find a way to build opportunities to approach the regulators together, this builds a good sense of partnership because it’s impossible (or relatively impossible) for you alone, as the customer, to go and change the regulations without the heavy involvement of the suppliers as to what differences and what changes would really make sense to improve safety, quality, cost, value, et cetera.”

Establishing mutual value

Rob moves on to describe how this collaboration brings mutual benefits for both parties in a sector, as he adds, “One ROI connected to the regulation piece, is the idea that there’s ROI for improving the industry as a whole, rather than just your own company. Let’s say in gas or energy, or whatever, if you can improve the regulations, then actually it drives an improved quality and value for everyone. Even for your competitors, at some point, when they catch up.”

Mary Beth echoes this point as she draws on examples from the recent pandemic.

“We have many small and diverse suppliers that, over the year, we have invested time and dedication to. We have a division within Procurement that focuses on impact spending. It looks at diversity and it looks at sustainability, but it also looks at helping companies to set up jobs that have their employees on a living wage. And, so, we believe that, within the ecosystem that we serve, we need to strengthen those communities.

And that has been a longstanding commitment. Years ago, we committed to be part of the ‘billion dollars’ round table and I’m very proud to say that last year, in the middle of a pandemic, we had $2.56 billion dollars in diverse spend. And a lot of that work was because of the mutual commitment we put into supporting those suppliers. In the middle of COVID, we created a supplier resiliency playbook to allow suppliers to look at how they stay in business and how they re-emerge when we are able to open up our facilities again to regular procedures and care.

Their innovativeness and willingness to retool were also very helpful. We had a big oxygen shortage in December, and we had three different companies that were very innovative, so we were able to set up different pods outside our facilities and were able to give to our patients the oxygen concentrators as they left our facility. Those are the suppliers that we look to when we have a crisis.”

Rob agrees, adding, “Obviously when we talk about supplier resilience during pandemic, we are making sure that people are still there at the end. The one that immediately comes to mind is working capital or payment terms. I am really interested in the idea of supplier resilience programs, because that’s a big part of being supplier centric. You have to pay them appropriately and you have to source appropriately, so that it encourages, and allows for, diversity. Sometimes, you might have to be a bit more creative about your approach to resilience.”

Answering Rob’s point about the creativity needed, Mary Beth elaborates, “We had about 1,000 of our suppliers that fell into the area where we were most concerned. So, we reached out to local associations, and we pulled together any finance options that were available and put that into the playbook. If they needed to look a small business loan, or if they needed to see how to stay in business financially, that was part of the playbook.

We also called to find out how the staff were and how was staffing. As you know any many organizations lost key staff and when they were ready to restart their business, the staff were not there. It meant that some of the high-touch services that we were used to receiving couldn’t be offered. We said, ‘we don’t need to get that now. We just need to get you back up and running and then we can resume the high touch service when you’re fully staffed.’

Payment terms were another piece that we worked through to make sure that we were helping with cash flow. They are just a couple of examples, but it really made a difference at a time when 75% of small businesses were going out of business and we had a very high retention rate.”

Building success together

Another foundational principle of Supplier Experience Management is that an industry as a whole cannot be successful if suppliers are not successful.

Rob explains how part of this lies in making sure that suppliers feel not only like they are a clear part of the supply chain, but also part of the organization. This included, during the pandemic, being flexible about planning, about material services or about other challenges that might be occurring in certain locations, which Rob sees as part of protecting for the future. Key to this, he believes, is visibility. “We had a good understanding of tier-one, but we didn’t have a really great understanding beyond that, as many people don’t,” he continues. “That was something that developed through the pandemic that we definitely wouldn’t like to give up in the future.”

“I think you’ve got to be able to understand, to get visibility, and to look at the risk – and therefore the resilience – in your supply chain to really appreciate how to go about segmenting or deciding who it is that you’re really going to work within the different tiers. I think that’s something that came out very strongly from the pandemic for us, which I would definitely take forward into less troubling times.”

In addition to visibility, Mary Beth also describes the importance of community. “What we found within our supplier base is that many of them do business with each other,” she explains. “And so, as we have built our diverse supplier community, they have become a community among themselves. This means that 75% can reach out and ask each other key questions. For us, that has just strengthened the diverse supplier network that we have. We did see a lot of that – and we have global associations that were very active and very helpful as well.”

Rob adds that the community aspect is going to be vital when it comes to supporting local and diverse businesses, as well as in areas such as fair wages and emissions.

Mary Beth agrees, stressing the importance of collaboration with suppliers to this end. “Sustainability really is top of mind,” she says. “We’ve looked at our scope one emissions, so that we can be carbon neutral, and we were able to achieve that last year – but now we’re starting to tackle scope three emissions, which is a very different discussion, and we will rely on our supplier partners more and more to achieve the bold goals that we’re trying to adopt.”

SXM and establishing new ways of working

In the webinar, Rob explains how he views the journey to Supplier Experience Management (SXM) as one of a measure of maturity, as we explored in the recent HICX Supplier Experience survey, which may begin with tracking some basic metrics and evolving this into Supplier Relationship Management (SRM) based on segmentation – and becoming more sophisticated over time. However, he warns that, although Supplier Experience Management demonstrates a higher level of maturity, it is important not to see SXM as a subset or an extension of SRM. “I don’t really see it as SPM for everybody, then SRM for a few and SXM as a subset,” he explains.

“It is different criteria that you have to apply compared to supplier relationship management. It’s about who has the shared ambition, who has the shared objective, who can work with you and invest their time alongside you to really be jointly successful.”

Mary Beth believes that post-pandemic, relationships are going to be very different now. “We still have many companies in which the staff is working from home, and they haven’t had any face-to-face interaction with their supplier partners. So, as a society, we’re learning to forge relationships and work on projects – virtually – in a very different manner than I think we ever imagined was possible.”

Rob continues, “I think that in the COVID crisis, everyone started to find different ways of working and this really allowed people to see the importance of what they were doing in a number of ways, especially so in Procurement and Supply Chain.” He believes that it has enabled not only the functions themselves to understand better their roles within the wider organization, but also it has allowed others in the organization to see the importance of what they are doing in Procurement and Supply Chain.

“That’s one thing, definitely, that I hope will continue,” he adds. “Hopefully people have got the idea that suppliers are an extension of our organization. Let’s maintain those relationships with them. These are actually a real part of our organization that can provide benefit for years to come. I’m hopeful that it does give an opportunity for this improvement and supplier experience going forward.”

Procurement in 5 years’ time

Rob points out how everyone at the moment is really focused on digitization, digitalization and automation. As a result of these efforts, Rob hopes that in 5 years’ time, we will see a different Procurement in which all of the information is shared, can be interrogated as required, and that the administrative burden of communication is no longer a factor. “So, actually we’ve got the communication, the relationship, the supplier experience, that innovative approach and that connected communication that really enables that. That’s what I’m excited about building for the next five years.”

Mary Beth explains, “Transparency is a big need for us and so I would hope we would be able to look into our supply chain partners. The other big thing in five years, I hope, is that we’ve all made a significant commitment to our environment, to sustainability, and to adopting scope three emission reduction. We have the ability not only to spend our dollars, but also to make our spend count towards impact spending and more sustainable products,” she concludes.

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