Tuesday, October 13, 2009

Supply Stability

Supplier management in the past was usually handled by the departmental secretary who chose which corner shop to buy the paper clips and pads from. Advanced version of this function also included choosing the best take-out joint for lunch or snacks. Nowadays, however, supplier management is a major process that is becoming more and more crucial in an organization’s ability to function efficiently and remain competitive due to the increasing complexity of inter-dependency between organizations.

The products or services that are being supplied by the supplying organization are numerous and complex. Consulting, material, equipment, information, knowledge and people are a few examples of resources and capabilities that are exchanged between organizations. While products need to be monitored for quality, price, delivery punctuality etc., the more intangible resources such as consulting and knowledge require further specialized skills in the management of its suppliers and delivery.
Suppliers can be broken down into the following categories by importance:

  • Strategic Suppliers: Where goods and services are hard to obtain and require adequate stockpiling for safety. The goods and services being supplied are crucial to the operation of the organization.

  • Tactical Suppliers: Less difficulty in obtaining goods and services. The items are not as crucial to the successful workings of the organization.

  • Operational Suppliers: Goods and services are relatively easy to obtain and there are alternatives to choose from. The items are not so crucial to the running of the organization.

  • Commodity Suppliers: Goods and services are easy to obtain and there are many supplying organizations to choose from. The items being supplied are not crucial to the opration of the organization.

Supplier Management is the process that ensures that external services and configuration items, which are necessary for the service delivery, are available as requested and as agreed at the service level. Some of the responsibilities of this process are:

  • To ensure that the supplies are made as per the pre-defined requirements and service levels.

  • To ensure that every supply runs through a set of standardized steps and procedures in order to ensure repeatable and predictable results every time.

  • To manage the risk to normal service operation due to lower control levels and accessibility inherent in using external suppliers. This involves the periodic assessment and testing of supply quality and service levels provided with the supplying organization.

  • To document analyze and review every supply decision and activity.

The best way to handle all this is to implement a well defined and formal Supplier Management process complete with a Supplier and Contracts database and Supplier Manager. The basic sub processes within the Supplier Management process are:

  • Supplier Request Recording

  • Supplier Selection

  • Supplier Evaluation

  • Supplier Negotiation

  • Supplier Service Delivery

  • Supplier Renewal /Termination

The proper execution of these sub processes will ensure the smooth and efficient function of the Supply chain. The act of receiving supplies from another organization is, therefore, seen to be an important one and should be given the importance and respect it deserves by proper planning and execution of a formal process for it.

1 comment:

  1. As the saying goes, there are many ways to skin a cat and this is one of them and a good one at that.

    To improve the supplier management process though I would recommend that the process is reflective; In the past the focus has been on the “client” managing the supplier; In today's environment, and especially with strategic suppliers, it is necessary for clients to be "managed" also; Strategic suppliers are often experts in their field and they can provide significant value add to a client above and beyond a buy/supply relationship.

    Furthermore, there needs to be a means by which communication can be nurtured between the supplier and the client; Depending on the “size” of the relationship, communication needs to happen at various levels of seniority (executive to executive, senior management to senior management, project manager to project manager Etc).

    Typical tools to aid this are the client relationship score-card, a variation on the scorecard idea proposed by the great and good at Harvard Business School (Kaplan etc circa 1990).

    The relationship score card will typically consist of Key Performance Indicators (KPIs), jointly developed by the client and the supplier, thus providing the means by which all stake holders can participate in the discussion.

    The score card can be used to ensure that the Client-supplier relationship stays healthy and any issues can be addressed in a transparent and professional manner; It is also useful in allowing the client a degree of self introspection... are they doing the right thing by the supplier and in the relationship ?

    Like broken marriages, it’s amazing how often the relationship breaks down through lack of communication!

    The addition of the score-card is one tool that can go a long way to avoid that breakdown!