Now that we’ve discussed what supplier management is as well as some of the specific guidance that ITIL provides around supplier management, we will examine five simple things an organization can do to improve supplier performance. Each section discusses the specific recommendation, how it improves supplier performance, and a relevant example of the recommendation.
First Simple Thing: Consider How Your Organization Appears to Your Suppliers
As Bossert (2004) indicates in The Supplier Management Handbook, the relationship between suppliers and purchasing organizations has historically been adversarial. However, due to significant changes in technology, increased levels of services desired, and a focus on generating shareholder value on both sides of the supplier/purchasing organization relationship, both parties are more likely to work together to create overall value. In other words, the success of the purchasing organization is highly dependent upon the success of the supplier.
Because of this historic, adversarial approach to supplier management, suppliers, and purchasing organizations, both parties had counter-productive views of one another. Every purchasing organization has a story about how poor supplier performance impacted the delivery or quality of a service. Because of this, purchasing organizations have always attempted to insulate themselves from supplier-induced disruptions by having sufficient inventories on hand or by being able to quickly move to another vendor. On the other hand, suppliers have also perceived purchasing organizations as often being unfair, lacking an ability to plan, and managing by crisis.
These contrary viewpoints affect the overall value generated in any supplier/purchasing organization relationship. Ultimately, this historic approach to supplier management is simply too costly. An organization should care about how it appears to its supplier because modern-day supplier management is about strategically partnering with suppliers to generate the most value at an acceptable cost. To be successful, organizations must accept that they and their suppliers are working towards common purposes and goals. If an organization’s suppliers share this viewpoint and recognize that both the supplier and the buying organization can benefit from improvements, efficiencies, and partnering, then the relationship with the supplier is likely to be stronger and have a greater positive impact on business results.
A mature IT organization wants to work with mature suppliers that are engaged and involved in a win-win provision of services. Suppliers that do not share this viewpoint are riskier because they view the purchasing organization as simply a source of revenue and do not understand the concept of, or truly participate in, the creation of strategic value. Selecting suppliers that share your organization’s viewpoint with respect to supplied services results in higher-performing suppliers and high-quality services.
For example, consider a hospital. Hospitals do not typical close their doors when there is a disaster. In fact, when there is a disaster, the local hospital is the place where people are likely to go. Hospitals often have very effective business continuity plans to keep critical services available during all types of disasters. Hospitals regularly evaluate their supplier’s ability to provide services under disaster conditions and will regularly assess the viewpoint the supplier has of the hospital to be sure the supplier understands the nature of the hospital’s business; that is, nothing is more important than delivering patient care.
Next week I’ll discuss the second simple thing, establishing clear supplier performance targets.
Reproduced and available for download from Global Knowledge White Paper: Supplier Management: Five Simple Things Your Organization Can Do to Improve Supplier Performance