Who is your best supplier?
Can you pick one, or a few, out of the bunch?
Some procurement professionals can quickly identify their key or champion supplier partners.
Unfortunately for many, basic supplier insights, such as contract, spend, performance, risk, and compliance data aren’t so easy to get a hold of or begin to analyze.
Listed as a top key finding in a 2020 WBR Insights report, it was found that “The top concern for procurement professionals is making buying decisions without the necessary insight” (WBR Insights 2020).
Access to reliable insights is incredibly important when aiming to know which suppliers are the ‘right suppliers’ to collaborate with.
As you may know or experience, the complexities of a global supply chain and global supplier base can pose challenges for even the most mature of procurement organizations. One could argue that as a larger, more mature, and more complex procurement organization, there will be more trouble building deep buying insights than within an organization of a lesser complexity or maturity.
You know how it goes… one supplier might deliver to several categories whilst delivering a wide range of finished products and/or components to those various categories. You may have formed a strategic partnership with a supplier, making their deliverables intricate to your core business.
Frame agreements, unreliable spend data, siloed processes, gut purchases, long-standing supplier relationships, and the list of potential barriers to building good buyer intelligence goes on and on.
But how can you know who your best supplier is if you don’t have the business intelligence at hand to really know your suppliers?
‘Do you know your best supplier?’ is a question posed in order to provoke a dialogue that I believe every procurement organization needs to have at one point or another. Who are our best suppliers? How do we know they’re our best suppliers? How can we better identify and leverage these suppliers to build value?
A response to who is actually your best supplier would be highly subjective and relative to a respondent’s own experience, function, role, and relationship to the supplier base. The best way to remove an individual’s subjectivity from the conversation is to centralize the process, align on performance parameters, and set the acceptance criteria for good and bad.
So, who is your best supplier?
If you don’t know, chances are you need a new framework for supplier evaluation.
Better Supplier Evaluations = Better Procurement Intelligence
Q2 comes to an end, and your CPO looks in your direction.
What supplier has performed best in Category X, Y & Z? What supplier do we have the highest spend within Category X, Y & Z? Of those suppliers that have the highest spend level and are the highest performing, which contains the most business risks from an environmental & social perspective?
Sure, you can try and shuffle through the rows and columns of your Excel Hell, build custom algorithms, and visualize a bar chart. But, within this scenario lies a question you must pose to yourself and your broader procurement organization. Are you building procurement intelligence & insights that are driving supply chain performance forward, or are you simply reactionary in the way you obtain and utilize your supplier data at hand?
The interesting thing about asking the question ‘Who is your best supplier?’ is that it’s simply a preluding factor in determining ‘Who is your worst supplier?’
The means for obtaining the answer to these two questions should look very similar.
Adopting solutions & frameworks for modern supplier evaluation will automate your ability to create procurement intelligence & data insights based on the criteria your organization has aligned upon to evaluate. There are three things you need in order to modernize supplier evaluation and truly gain data-driven buyer insights, and those are as follows:
- Clear KPIs / Supplier Evaluation Criteria (the What)
- Find the right Data Sources (the Where)
- Build Business Intelligence (the How?)
Take time to take these three steps, and the next time your CPO looks in your direction, you’ll be able to respond more concretely than, ‘I’ll get back to you on that.’
Aligning on Performance Criteria
About 65% of innovations are sourced through external suppliers and partners (ISM). This makes supplier and partner contributions to a business’s bottom line very important.
“Having a formalized system in place to track and evaluate supplier and vendor performance is essential to the smooth operation and profitability of your company” (Brown 2010).
In order to best track and evaluate suppliers’ performance, your team needs to align on criteria upon which suppliers will be continuously evaluated.
So, where to start?
A first step to developing supplier performance criteria is to ensure that you’re taking a holistic approach to performance evaluation. This means you need to take into account KPIs that will cover various stakeholder disciplines. You can’t solely be concerned with evaluating performance criteria that will deepen sourcing & procurement insights into supplier performance.
You should use this KPI-building exercise as an opportunity to align common goals within the broader business organization, taking into account the goals/performance indicators of sustainability, quality, risk, supply chain, production, marketing & sales in relation to the broader supplier base.
Finding the right levels of granularity for your evaluation/performance criteria is important. At Kodiak Rating, we aid customers in evaluating supplier performance within six parameters with various sub-parameters that belong to each of those six.
Kodiak Rating’s Key Six Supplier Performance Parameters:
- Quality Performance
- Supply Chain Performance
- Commercial Performance
- Innovation Capacity/Performance
- Sustainability Performance
Under each of these performance areas, you should look to identify sub-parameters for supplier performance. Of course, the more granular performance evaluation you’d like to do, the more you should be taking into account the supplier group or supplier type (Producer, logistics, IT, Marketing, Agent/Trader, Contractor, etc.). It’s important to evaluate supplier performance in line with that supplier’s relevancy to your organization; pretty much make sure you’re comparing apples to apples and not oranges to apples.
Finding the right Data Sources
Now that you’ve built the closets, it’s time to fill them with the right information.
You’ve put in the work to identify key performance indicators to a certain degree of granularity. Now, where will you gather the correct information to know what a supplier’s performance is in that performance area?
Let’s look at an example:
You’re interested in gauging a few suppliers within a finished goods category on their overall innovation capacity.
In order to best gauge this, you determine that the supplier’s investment in R&D and previous track record of SEI are good indicators of their ability to innovate. Considering these aren’t numerical values, you’re going to need stakeholder feedback. To make sure stakeholder evaluations can be used in future data analysis, you should aim to quantify these qualitative experiences related to supplier innovation capacity; this can be done by weighing multiple-choice questions to receive numerical values.
At the same time, you’re interested in gauging a few suppliers within the same finished goods category on their overall quality performance.
Some sub-parameters of Quality Performance you’d likely gauge are deviance of compliant parts per million, number of complaints, and number of claims. These are all numerical (and quantifiable) values and are likely data points that are already reported by the QC, QA, and SQMs in your ERP solution or another QM solution. These data points should be pulled via API integration and fed directly into the correct area, based upon predefined acceptance criteria for excellent, good, satisfactory, and poor.
To automate evaluations as much as possible and gather robust supplier performance insights, it’s best practice to gather data from various data sources:
Kodiak Rating’s Four Key Data Sources:
- Internal Stakeholder Evaluation
- Supplier Stakeholder Feedback
- Existing Business Solutions (example: ERP)
- Third-Party Data Sources (financial risk, sanctions, media monitoring, etc.)
The more triangulation of data you’re able to do, gathering stakeholder feedback data, raw output data, and 3rd party data, the more robust evaluation results you’ll be able to achieve. Not every supplier will be evaluated in the same way, and not every supplier evaluation will require data gathering via APIs, supplier inputs, etc..
But, creating the framework for streamlining data/feedback gathering and weighting/valuing those data points numerically is crucial after you’ve located the right data sources.
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Building Business Intelligence
Alright, this supplier evaluation train is picking up speed and heading towards the end station, but we can’t forget to make the most out of the data at hand.
BI (Business Intelligence), Analytic Tooling, or Scorecarding is essential to ensure you’re making the most of the supplier performance evaluations you’re completing. The ability to cut up a data cake the way you’d like is paramount for unlocking deeper buying insights.
This is why it’s important to try and quantify as much of the qualitative supplier performance KPIs as possible (see above). But you already know this. You’re already aware of the importance of data analytics.
59% of CPOs say that Analytics is the technology that will have the most impact on procurement in the next two years (Deloitte CPO Survey 2019).
In every function of the organization, we’re in a continuous and frantic hunt for better data-driven decision-making. Data is the new oil. Within the data lies the answer to the question, who is your best supplier, who is your worst supplier, which supplier is the most innovative, which suppliers are the most sustainable, which supplier category has the third-highest spend, and so forth and so on. Accessing the truth through data is the end goal.
Improving Business By Choosing The Right Suppliers
Choosing the right suppliers can help boost productivity. Lack of supplies leads to production delays or temporary shutdowns, especially for manufacturing companies. Hence, partnering with suppliers with a track record is essential for business continuity.
Every business need supplies, including raw ingredients, building materials, office supplies, and a good supply of electricity.
Supply and procurement staff need to be aware that commercial electricity rates are going up across the globe. Companies in deregulated areas, like Texas, can shop for their power prices and lock in a low rate. That helps as a hedge against inflation.
Choosing the right suppliers entails patience and research. Before you sign up for any agreement with a supplier, you should determine if the company can offer you a steady supply of materials you need at fixed prices despite economic changes within your contract period.
Find out the supplier’s range and quality of products and services. It also pays off to ask questions before deciding, such as the following:
- Does the company offer technical, customer service, or logistics support?
- What contingency measures does the supplier deploy in the event of natural disaster or peace and order problems in the supply source location or delivery points?
- Does the supplier provide replacements for damaged supplies during shipping?
But, being able to identify your best supplier isn’t nearly as important as identifying the process and solutions — the means — to gain those perpetual buying insights.
Best said by Ralph Waldo Emerson, “It’s not the destination, it’s the journey.”
Take the time to dig around in your traditional framework and identify and implement modern processes and solutions for streamlining your ability to gain a continuous stream of future business intelligence.
The question isn’t really, “Do you know your best supplier?”
But, rather, “Do you know who it will be tomorrow?”