In today’s fast-paced and ever-evolving business landscape, the significance of a secure and resilient supply chain cannot be overstated. As procurement professionals, we find ourselves at the forefront of a critical challenge: ensuring the reliability and security of our supply networks.
Our 4C Transformative Procurement Survey highlighted that only 38% of respondent had a very good understanding of their first-tier supply base and more worryingly only 21% had only a basic understanding, which raised the question…
Do you have a secure supply chain? And, just as importantly, how well do you really know your suppliers?
It is concerning that a third of organisations had only a very limited or no supplier relationship management process in place to cover first-tier suppliers. This raises to 75% for the management of the wider supply chain, critical in many cases in reducing supply chain risks and maximising supplier innovation opportunities. It was also noted that no firm with a basic or growing maturity achieved over 5% in procurement savings.
It is the most critical suppliers who hold the key to your success, providing the lifeblood of your operations. In a world marked by unprecedented challenges and rapid changes, understanding these crucial partners is becoming more important than ever.
We shall examine the question through the lens of five strategic areas identified by respondents to our 2023 4C Transformative Procurement Survey.
Supply Chain Uncertainty and Visibility
75% of the respondents to our survey listed Supply Chain Uncertainty and Visibility as a key strategic issue facing organisations. In an era defined by disruptions and unpredictability, gaining transparency into our supply chains is not just a competitive advantage, but a survival imperative. When it comes to your most critical suppliers, visibility is the beacon that can act as your guide to understanding their operations, vulnerabilities, and potential disruptions is essential for managing the risks.
Supply chain disruptions have led to production delays, increased costs, and, in some cases, business closures. To address these challenges, best-in-class organisations are identifying areas of risk and working collaboratively with their critical suppliers to improve visibility by using advanced technologies such as blockchain, IoT sensors, and data analytics. These technologies provide real-time data and insights across the supply chain, enabling proactive risk management and rapid response to disruptions.
Inflationary Pressures
Over the last two years, inflationary pressures have impacted organisations across all major economic areas, with the largest increases in CPI in decades. High inflation is like inflating a balloon, constantly adding cost pressure to your bottom line. Procurement leaders are faced with the challenge of mitigating rising costs while maintaining product quality. This balancing act requires a deep understanding of market dynamics, supplier relationships, and negotiation skills.
Suppliers may be more susceptible to these cost increases and impact your overall procurement costs. By forging strong relationships and developing an understanding of the inflationary pressures that impact your suppliers, allows you to build better risk management strategies, and better contingency planning and to develop a knowledge of your supplier cost base to challenge and justify inflationary charges.
It should also be noted that as the market starts to turn around into a deflationary market, where prices start to decline, this will also present risks and opportunities for organisations. Organisations need to work with their supplier chain to adapt their strategies to take advantage and offset the risks to themselves and their critical suppliers.
Spend Cost Reduction
The pursuit of spend cost reduction is what most C-Suite executives see as the perennial goal of the procurement professional. With organisations becoming ever more reliant on third parties to deliver their operations and supply chain complexity increasing, there is a requirement for procurement professionals to develop into category specialists. Identifying the organisation’s most critical suppliers and gaining an in-depth knowledge of the supplier’s market, supplier’s operations, and cost base to unveil opportunities and drive value back into the organisation.
Organisations with a high procurement maturity will develop strategic collaboration systems and processes with their critical partners to yield substantial savings. A report by The Hackett Group found that world-class procurement organizations achieve 19% lower procurement operating costs compared to their peers.
To achieve these cost reductions, procurement category teams are adopting various strategies. These include supplier consolidation, strategic sourcing, contract optimisation, and demand forecasting. Advanced procurement tools and analytics are instrumental in identifying cost-saving opportunities and optimising spend.
Engaging Stakeholders and Becoming a Trusted Partner
Engaging stakeholders and becoming a trusted partner is part of building the foundations for procurement success. Procurement is no longer confined to a transactional role. Building strong strategic relationships with both internal and external stakeholders will help drive procurement evolution to a strategic function within organisations.
Becoming a trusted partner requires procurement to develop viable options on how the organisation can drive the best value, reduce operation risks, and drive a competitive advantage across the supply chain.
Our most critical suppliers are not merely transactional counterparts; they’re essential collaborators to how the organisation achieves its goals. Nurturing the relationship with these suppliers is crucial in developing a trusted partnership with the organisation’s prime stakeholders, allowing them to make organisational decisions based on the information and analysis developed from these supplier relationships.
Internally, procurement professionals must collaborate closely with stakeholders in business functions such as HR, finance, operations, and marketing. Developing trust and mutual understanding is essential to assuring that procurement objectives are aligned with organisational and functional goals building a strong foundation as a strategic business advisor rather than an overhead.
Sustainability and Social Value Initiatives
One of the great shifts in the procurement paradigm is a focus towards sustainability and social values. Customers and stakeholders are increasingly pressuring organisations to show great responsibility for the environment and social impacts. With a magnified focus on sustainability on the corporate and procurement agendas, it’s disappointing that over 83% of respondents to our 4C Transformative Procurement Survey had only limited sustainability performance measures and these were not applied consistently.
Organisations now find themselves under more regulatory pressure as the country moves towards its “Net-Zero” targets. Only by working closely with our supply base will organisations achieve meaningful progression toward their sustainability goals. Working with the supply base we can develop and use smart systems to automate the measurements and audits help ensure sustainability project improvements and regulatory compliance. In turn, this provides the C-suite with reportable transparent data on sustainability initiatives across the full supply chain.
Sustainability and social value are ethical obligations and should be an organisational imperative in shaping the organisation’s future success.
The main procurement drivers behind the development of a sustainability approach are integrating sustainability criteria into supplier selection and evaluation processes and working closely with suppliers to improve their sustainability practices throughout the supply chain. This not only aligns with corporate social responsibility goals but also mitigates reputational risks and enhances brand value.
So, how can you get to know your key and critical suppliers better and forge deeper relationships in these strategic areas?
At 4C we advocate working collaboratively with your teams to develop and implement a Supplier Management Framework using insights, tools, methodology and embedded technology to provide a robust process for managing your suppliers, resulting in value being identified and released whilst reducing the risk within your supply chain. The key foundation steps for doing this are:
- Align Procurement Strategy and Organisational Goals: Work collaboratively with your stakeholders to ensure that the procurement vision and strategy align with the organisation and functional goals.
- Supplier Segmentation: Categorise your suppliers based on their impact on your organisational goals. Identify those that are the most critical to your supply chain and focus your resources on them. This segmentation will help you allocate resources more efficiently.
- Data-Driven Insights: Leverage technology to gain deeper insights into your suppliers’ performance, risks, and opportunities. Where possible automate with knowledge management platforms, spend mapping and analytics tools, carbon tracking platforms, project management and supplier management systems to reduce the use of scarce resources.
- Supplier Engagement: Create cadence meetings with your most critical suppliers and create a dialogue of open and transparent communication to build successful partnerships. Use this to understand their challenges and work collaboratively to align goals to generate value for both parties.
- Measure and Evaluate: Develop and agree on Key Performance Indicators with the suppliers that assess their performance across the key strategy areas that are important to the organisation. Regularly assess the performance and solicit feedback, measure your progress, and adjust to drive value from the relationship.
Building strong relationships with critical suppliers is imperative to organisational success. Our critical suppliers play a major role in ensuring our supply chain security and resilience, the success of your sustainability agenda, combating inflationary pressures, and reducing costs. Aligning your procurement strategy with organisational and functional goals and working collaboratively with stakeholders to address the five strategic areas identified, you’ll not only secure your supply chain but also unlock the full potential of your critical partnerships.
It’s time to ask the question “How well do you know your critical suppliers?” The answer may determine the course of your organisational journey.
If you are interested in finding out more about supplier and contract management, would like to know more about our 4C Transformative Procurement Survey, or would like your organisation assessed please feel free to get in touch with us via our Partner, Will Sillar or myself Bruce Kirkwood. We’re always happy to collaborate, share knowledge and support.
Published
January 12th 2024