So, now that we’ve done that, how do we proceed? Let’s turn back to our five keys to SRM.
Our Five Keys to SRM, Revisited
Now that we’ve narrowed our supplier view using the first three bullets, it’s time to dig deeper into our supplier relationships:
Properly segmenting our supplier base. Gauging the state of our relationships – and evaluate which are most important. Consolidating suppliers to a manageable number, given the points above.
- Reconsidering of what our suppliers mean to us and how we interact with them (and getting it in writing).
- Improving how we communicate with our suppliers.
A lot of Procurement’s functions are highly tactical in nature, which is important but not the basis for valuable, company-wide improvements. Tactical is reactive. Tactical is stagnant. Procurement needs to grow beyond the tactical elements of the job. To take our game to the next level, Procurement needs to be strategic.
Our goal with strategic partners should never just be about reducing cost. Rather, our goal should be to maximize the ROI of every dollar spent. This will be familiar to any Procurement Pros who work with their Marketing teams successfully. Marketing can traditionally be a tough spend category for Procurement to break into, because those teams often think that we just don’t “get it.” In many ways, they’re right. If one creative agency costs us twice as much as another we work with, we’re likely going to start thinking about negotiating based on established rate cards. We might go out to market to bolster our benchmarks. But does this make sense in the long term? If that first agency produces a 3x ROI where all others have lagged, there might be more to the relationship to consider.
- What are they doing right for the 2x price that nets a 3x ROI?
- How can we expand this best-in-class service to cover more critical components of our strategy?
- Are there any tactical elements we can separate from this agency and move to another? This could yield cost savings as well as allow this agency to focus more on the critical components more worthy of their time.
Getting to the level of understanding needed to answer these questions requires a commitment to communication. This includes internal communication with Marketing, but extends out to our suppliers as well. Our strategic partners have a level of understanding that we just can’t have when it comes to their areas of expertise. This is, of course, why we hired them in the first place. Listen to their concerns and suggestions on how the relationship can be expanded for your mutual benefit.
Open communication doesn’t have to happen late in the game. I propose we start all relationships this way right off the bat. I’ve run through plenty of RFP initiatives, and one element dictates success more than any other: the amount of two-way communication is built into the process. At the risk of side tracking into a whole other topic, this means providing background on the strategy that participants will be supporting, and built-in question and answer sessions, ideally in real time, to discuss goals. Some clients avoided this discussion, choosing to keep critical info under lock and key. They did this to their detriment. Those who were open and collaborative during the RFP process ensured that proposed solutions,
- Were a better fit for their organizations. Responses to the lock-and-key crowd rely on making guesses and assumptions about the buying organization, which don’t always align with reality.
- Were more encompassing. Opening communication leads to suppliers who feel free to propose alternatives or new products and services that could be valuable.
- Were more cost-competitive. Suppliers who are engaged as partners instead of just participants come to the negotiating table more openly and are receptive to the process.
Keep your Eyes Open
We’re about 800 words into this post, yet I could’ve just summarized my points here in four words: “Take your blinders off.”
Some of what we’ve discussed today deals with process change. A great deal more, however, deals with changing Procurement’s perception about what the buyer-supplier relationship means. It can be easy to fall back to the default of tactical thinking. We should challenge ourselves to proactively consider what our suppliers can bring to the table beyond their product offerings.