Evaluating Supplier Performance
Imagine that you have been given the task of evaluating supplier performance in a key spend category.
Let’s assume that there are two incumbents that have been in place for just over ten years.
The product provided is used by every location in the company.
There are tangible and intangible obstacles you will face.
Some of the most common ones that have been shared with me by procurement professionals include:
- Complacency
- Lack of time
- Lack of resources
- Data is scattered
- Stakeholders complain but don’t cooperate
If you are going to complete your mission, be ready for resistance.
It will be worth it especially if supplier have been in place for this long. It is very likely that your account is very profitable. If you are like me, you just want your fair share.
I like to start with a review of the history of the relationships.
- How long have they been in place?
- What percentage of the category do each ‘own”?
- What are the cost trends over the last five years?
- Has an analysis of the cost to change been performed?
- How many billing, delivery or quality issues have been documented?
- How many stakeholders have raised concerns?
- What percentage of sales do our purchases represent for each supplier?
- Do these companies also supply a key competitor?
- Has there been turnover in key contacts at either supplier?
- Do you have current financial information on both?
- How many alternative suppliers are in the market?
- Have any suppliers approached you about this business in the past year?
- Will the incumbents aggressively defend their positions?
- How long will onboarding a new supplier take?
All these questions are important however, I believe some should carry greater weight.
If your supplier also sells to a key competitor one of you is giving up your competitive advantage. This is a solid reason to evaluate an alternative source.
How important are you to each supplier?
Leverage works both ways.
Suppliers want to keep your business because any lost business comes right off the top. Profits will be negatively impacted since it is unlikely that will be able to shed the fixed overhead your business was supporting.
Suppliers realize that shaving some profits to retain business is almost always easier and smarter than finding new business to replace it.
If your suppliers are unwilling to sharpen their pencil, then they may have been thinking of dropping you as a customer. This is a good thing to know so you can plan rather than being blindsided.
Based on my experience, creating competition with an RFP that includes new suppliers will generate savings and/or service improvements.
In most cases, the incumbents will see this as an opportunity to gain share and will “suddenly” become more competitive.
In some rare situations you will find that the price and service you currently receiving is acceptable.
I can live with that and I believe you can too.
The best time to do this was five years ago, the next best time is now.
Ask better questions, make changes and 2019 will be your best year ever.
Action Step: If you are uncertain where to start the process of change, a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you want.
If you want to go explore this topic in greater detail, please contact me. I invite you to request 30-minute discovery conversation. In my experience the next step will be apparent at the end of the call. I never assume that what I have to offer will be right for everyone, so don’t expect a sales pitch. You can reach me at 973-936-9672.
If you would like to know more ways to reduce costs without changing the way you do business, simply give me a call or send me an email with your contact information and the best time to reach you.
You Won’t Drift to Success©
Commit to taking the next step.
Until Next Time, I Wish You Great Success in Your Business and in Your Life
Mike Jeffries