Mastering supplier management and mitigating risk.
An expectation for all procurement professionals, but easier in theory than practice. It requires having a clear plan and view of the supplier landscape, as well as performance measurement that values forward-thinking indicators such as innovation. For energy procurement professionals in particular, the impact of productive vendor management can have a significant and direct impact on the bottom line, sometimes translating to hundreds of thousands of euros, dollars, etc. saved.
That was the topic of conversation during a recent panel session at ProcureCon Indirect Europe, an industry event for chief procurement officers and heads of procurement. Sara Hoefkens, international solutions director for Schneider Electric’s Energy & Sustainability Services (ESS) business, joined three other industry experts to provide perspectives and practical advice on getting the most out of supplier relationships.
Here is a summary in her own words.
More about the panel
We took time to explore how suppliers are a key part of the procurement solution and, most importantly, how they can make business improvements.
From an energy perspective, the change in oil market conditions has led to a rebound in commodity prices. Plus, with ever increasing non-commodity costs and a continued move toward decentralized energy, suppliers are a potentially high-value addition to the procurement team.
The intelligence that suppliers can add to the overall solution can vary from turning data into actionable information to developing a renewables strategy that aligns with a company’s sustainability and procurement goals. It’s innovation combined with experience that maximize value and minimize risk. The ESS procurement team as an example, manages €30B of customers’ energy spend.
The panelists also discussed that a robust supplier relationship management program should be developed to encourage innovation and protect against complacency.
Biggest trends and customer experiences
One of the most prominent trends is that not all businesses have a supplier management plan, particularly regarding the indirect channel. The perception being that the direct categories are further ahead and achieving more value as a result.
In many cases, it is believed that procurement could learn from sales in this area by mapping its suppliers, their businesses, their innovative capabilities and potential business risks more clearly. Basically, that the customer needs to know its supplier as well as the supplier knows the customer.
Innovation is viewed as a crucial element in all supplier engagements, whether it’s a new or existing relationship. Although many purchasers tend to keep scorecards to measure performance of their vendors, many purchaser teams don’t include “innovation” as a key performance indicator in the scorecard system.
Our suggestion is that there needs to be dialogue to encourage this — a focused question, for instance, in requests for information. “How do you innovate?” should be replaced by open discussion in the pre-qualification stage about “How/why does your business need to innovate?” and “How ready for innovation is your business?” Ultimately, innovation is mutually beneficial and strengthens both new and existing relationships.
Lastly, customers and suppliers agree that a scope of work (SOW) that’s not developed as agreed is a major pain point. Clear dialogue on the expectations of the SOW, timescales for delivery and contingencies in the event of business changes are needed to reduce frustration.
Key insights and recommendations
There were four main takeaways from the conversation.
- Have a supplier management plan, including regular communications and delivery milestones.
- Map each business you work with, in the same way that prospective suppliers map your business.
- Spend time understanding what innovation is relevant and necessary for your business, and involve your current or potential suppliers to benefit from their expertise, understand the options better and ultimately drive engagement with the solution.
- Adopt a delivery structure whereby a client manager owns the supplier relationship, but can tap into dedicated functional teams in the supplier organization that carry deep knowledge into specific areas of expertise. Many purchasing professionals today try to combine being experts in sourcing as well as vendor relationship management. Both require a very different skill set, however, and as such purchasers often struggle to be successful in both domains.