Supplier relationship management

Review your entire spend with a supplier and categorise it.

Determine the size and significance of the spend in relation to your overall portfolio.

At this stage, you might also consider modelling your likely future spend.

Work out which stakeholders are currently responsible for the supplier relationship, what services those stakeholders provide (internally and externally), and where they sit in your business.

It helps to understand your core business offerings.

Identify which suppliers account for 80% of your spend.

You should end up with a list of suppliers who are responsible for a large percentage of your overall spend.

This will help determine which suppliers are the most critical to your business.

Some suppliers may only require a small percentage of your spend, but their service offerings may still be unique or critical for your business. For example, a software product that's been custom-made for your business.

By this stage, you should have a clear list of suppliers who offer the most valuable services to your business.

Any suppliers who are not on your list are likely to be tier 3 suppliers. That is, suppliers who do not have high importance for your business.

Take the time to assign the suppliers on your list to either tier 1 or tier 2 status based on your spend and how critical they are to your business.

The stakeholders you assign will be the relationship leads for each supplier.

Review your findings with stakeholders and then assign a relationship lead for each supplier.

To effectively determine business impact risks, conduct a thorough risk analysis.

Consider the potential impacts if the supplier ceases trading, or terminates the supply relationship for any reason.

Your analysis should cover the likelihood and severity of each outcome, along with the cost and impact of mitigating the risk if it eventuates.

Some suppliers may have a low level of SRM-readiness, and won't be prepared for ongoing relationship management. For example, their business may be too small to assign their own relationship managers, or they might need to focus on customers with a larger spend.

Alternatively, you may assess their level of commitment to the supply relationship by examining how often they improve their service or update their products.

This can be particularly pertinent when dealing with software developers, or other suppliers with products that need to be updated.

Frequent updates may be just as problematic as infrequent ones, depending on the product and business need.

When assessing current and forecasted spends, you can consider developing a weighted value score.

You may decide to weigh current spend more highly than future spend.

This is particularly relevant if, for example, you think the technology may be replaced, or the market may open up to other, more innovative options.

When considering the cost of switching suppliers, you may need to factor in the likely cost to rebuild or replace the service.

There might also be contractual clauses that include penalties for existing a supplier relationship early.

Review the relationship between the supplier and your stakeholders.

Some suppliers offer a level of innovative service or willing collaboration that can make a difference to your team and customers.

Tier 1 (or priority 1) suppliers provide customised or unique products or services that have a significant impact for your business.

Tier 1 suppliers typically provide you with a competitive advantage. There are few, if any, alternatives to using these suppliers, and the cost of switching suppliers is often very high.

When working with tier 1 suppliers:

• assign senior stakeholders as relationship leads who are committed to long-term relationship-building with these suppliers.
• communicate regularly about performance (KPIs, SLAs), as well as opportunities for innovation and progress on existing contracts. You may also share information about your roadmap and forecast.
• conduct regular business reviews, including annual business reviews, quarterly performance meetings and monthly reports. You should also hold annual workshops around continuous improvement, innovation, or supplier development.

These suppliers typically provide business-critical goods and services. You can usually find other suppliers for these goods and services, but switching can be difficult or expensive.

When working with tier 2 suppliers:

• assign mid-to-senior stakeholders as relationship leads, such as directors or category managers who can build and maintain the relationship.
• discuss performance regularly but limit the amount of information you share.
• report monthly and hold quarterly or annual performance reviews.

These suppliers are typically transactional, and their service offerings are not business-critical.

When working with tier 3 suppliers:

• limit your communication to buying activities and use group communications where possible.
• focus your supplier management efforts on awarding and terminating contracts, and focus your governance on monthly reporting and compliance.
• respond to ad hoc queries and enquiries through the NSW Procurement Service Centre.