A Supplier Development Program might be the Secret Sauce your business needs…
When a child is learning to potty train, there is a required development of knowledge — necessary — in order for the operation to go smoothly.
Preparation is an element required on the side of the parent, and both parties (parent and child) need to commit and communicate towards their common goal.
But, children don’t always color inside the lines (if you catch my metaphor). And, it’s not their fault.
Children aren’t born with the innate capabilities of using a toilet, prescribed to social norms or your demands. They must be coached through the process, have goals communicated, require hands-on assistance and must practice feverishly. And, at the end of the day, both parties can look back at the collaboration, satisfied with their achievements.
You may be asking yourself…
What’s this guy talking about?
My answer: Practicality can drive performance.
I believe that real world experiences hold applicable value within the business world. Creating practical analogies and drawing connections between two completely different elements of life can often boil a very big problem down to something extremely manageable.
I’m not saying that implementing a supplier development program is the same thing as potty training a child, but I am saying that they have frameworks and methodologies that run in parallel to one another:
The Importance of Supplier Development
Procurement and sourcing teams are heavily reliant upon the effectiveness of the suppliers they choose to collaborate with.
Relationship management between buyer and supplier is crucial to the success rate of a partnership, and both parties must learn to give and take to create fair/shared value.
“Assessment and evaluation of the performance of a buyer-supplier collaboration is necessary for ensuring that standards are continuously met, and value is being added to the buyer entity’s organization- through the performance of the supplier entity. And vice-versa” (Jenks 2017).
But, what if performance isn’t being met to a buyer’s demands, after initial supplier assessment?
Should the buyer kick the supplier to the curb, and start all over with a new?
Changing suppliers and/or selecting new suppliers are notoriously resource-demanding processes that don’t always pan out with expected results. Just as potty training a child, patience and perseverance is required to build long-lasting buyer-supplier relationships.
A good starting point for addressing areas of improvement with a supplier — before it becomes a problem for the greater organization — is the creation of a well-structured supplier development program (SDP).
What is a Supplier Development Program (SDP)?
Chartered Institute of Procurement and Supply, also known as CIPS, has been an international reference point for defining various supply chain-related strategies/activities for years.
Their definition of Supplier Development is: “closely related to supplier relationship management and is the process of working with certain suppliers on a one-to-one basis to improve their performance for the benefit of the buying organization” (CIPS).
Supplier Relationship Management serves as a framework for all interaction between buyer and supplier, but supplier development is a crucial element in optimizing that relationship.
An element missing from CIPS definition is the idea of mutual gain from supplier development. Suppliers undergoing a development program typically have elements of their production or organization to improve upon. A supplier development program, thereby, builds value for not only buyer, but supplier as well; making them a more attractive supplier for other buying entities.
Areas for Focus
Reviewing the status of a supplier relationship is crucial when structuring a SDP. Due diligence is a must when deciding if a supplier should undergo further development, provided by the buying entity.
Under the period of preparation, a buyer must be certain to ask themselves a few questions:
· What do I want to accomplish from a supplier development program?
· Do I have the resources capable to actualize a development?
· How much information and strategy is to be shared with the supplier?
· What are my KPI’s for ‘success’?
· How will I monitor this development?
· Is this supplier capable of undergoing a supplier development program?
Any and every SDP must have “identified targets that need to be met and the supplier development review is an opportunity to see whether or not these are being attained” (supplychain-mechanic.com 2017)
Keeping goals, and remaining constructive, are two very important elements to remember when creating a supplier development program.
The communication of wants/needs by a buyer, to a supplier, is crucial for the success of a supplier development program.
This takes us back to the ideology of building common goals through communication.
When it comes to the execution of a SDP, communication must remain a central focus, not only operationally, but also strategically. Facilitating the capacity to communicate with a large number of individuals on an intimate level requires the selection of trustworthy digital solutions.
Once you know how you’ll ensure streamlined communication, and track the feedback loops of communication, then you’ll need to actually execute communication.
Communicating values and expectations, developed during preparation, develops a basis for a cohesive collaboration. Throughout this process of enhancing rapport, one should communicate the importance of continuous evaluation and quality management. It is important that suppliers understand that their development, and the buyer-supplier relationship is one of importance and on-going progression. Regardless if it’s in the form of audits, supplier development programs, yearly performance reviews, or a standard self-assessment.
As a buyer entity, you will run into barriers to success when it comes to supplier development.
“Mismanagement of the procurement process and procedures puts a damper on genuine supplier development efforts and poor procurement systems create a lack of trust. The supplier lacks the necessary employee skills and proper internal process and procedures” (Petje 2010).
To avoid lapses in buyer-supplier trust, making the extra effort as a buyer shows a sense of engagement. I don’t mean sending an extra fruit basket with a KPI checklist, I mean getting your hands dirty!
Supplier development programs are best led when they’re completed on-site. That means, taking the steps necessary to leave the comfort zone of HQ in Germany and head into the fields of cacao farmers in Indonesia.
Take Cargill for example.
In efforts to fight world hunger under times of exponential population growth, Cargill is ensuring that their palm oil farmers/suppliers are supplying them with sustainable palm oil.
They started an initiative two years ago to have a completely sustainable and transparent palm oil supply chain by 2020. In order to complete this goal, they have set strategies and taken actions to train their suppliers — first-hand — about sustainable farming methods. The company has taken similar measures in its cacao supply chain.
The preparation and communication of their goals, for more sustainable farming methods, was well received by their suppliers; because they engaged them and trained them. Showing that they, too, were committed to the buyer-supplier relationship, and not solely interested in profit-gains.
To date, Cargill has worked to train approximately 90,000 cocoa farmers on sustainable farming practices. “In the process, it has improved its crop yields by 23 per cent and helped farmers achieve maximum profitability for their crops” (Shah 2018).
Benefits of implementing a Supplier Development Program
As a recap of the literature and evidence above, I thought it’s be fitting to conclude with a list of benefits experienced when implementing a supplier development program.
· Increased efficiency and production
· Reduced costs
· Creating collaborations in line with sustainable development goals
· Enhancing the cohesiveness of an overall buyer-supplier relationship
· Supply chain consolidation: creating an element of quality over quantity by developing a deeper relationship with a few suppliers.
· Trust and transparency
· Creating shared value to build upon in future collaborations
· Aligning supply chains focused on people, planet and profit
Need I say more? If you have any thoughts or comments of your own, please feel free to leave them below! Like the post, share or like!
Until next week.
This publication is brought to you by author Sam Jenks, but also on part by Kodiak Rating — A Supplier Relationship Management SaaS functioning out of Stockholm, Sweden. Kodiak Community intends to challenge traditional business practices with innovative thinking and creation.