The Role of Strategic Procurement in Supplier Development

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Thapelo Petje.JPGIt is imperative that supplier development forms an integral part of a buying organisation’s strategic procurement role to ensure a continuous supply of cost effective products and services, Thapelo Petje, Independent Supply Chain Consultant, tells SmartProcurement.

“In order to have an integrated supplier development strategy a buying organisation must have the following framework in place:

i. Visibility of its supplier community.
ii. A supplier database.
iii. Effective contract management.
iv. Supply performance management.
v. Top management involvement in understanding the integrated supply chain process.
vi. Its procurement system must be fully operational.

“To affect a strategic framework for supplier development the buying organisation must employ various techniques or tools:

Supply base management
This includes the categorization of suppliers in order of their importance to an organisation’s supply. This will enable the buying organization to have an informed view when it takes steps to rationalise the supply base. For example, supplier base rationalisation or reduction will enable the buying organisation to eliminate non-compliant suppliers from its database. Non- compliant suppliers might be in the form of a poor product or poor service delivery, failure to comply with specifications and the cost effectiveness of supplying the product or service, etc. During tough economic conditions, an organisation’s strategic procurement must take the lead in monitoring, measuring and managing the cost elements of its suppliers; failure to do this cost effectively will impact on the capital and operational costs that will be passed on to customers.

Process focus management
The buying organisation must establish processes to which its suppliers should adhere. Such processes create a guideline on how business is conducted in the acquisition of goods and services and supports the buying organisation’s business model and its strategic imperative. If the organisation opts to encourage its suppliers to comply with international standards such as ISO standards, this needs to be made known to the supplier community. If the buying organisation has its own accreditation process for small suppliers, it must be communicated properly without ambiguity.

The organisation must establish Supplier Quality Assurance, whereby suppliers will be monitored and evaluated on various quality programmes or audits that will ensure a level of confidence in the supply of goods and services and their improvements thereof.

Supplier Relationship Management
Buyer-supplier alignment is an important element in managing the strategic relationship of both stakeholders. Organisations must have the capability to share information about supply chain process mapping with buyers / suppliers. Information sharing sessions such as Supplier Forecasting sessions are crucial and will enable suppliers to understand the strategic direction of the buying organisation and help suppliers to invest in the necessary skills and technologies that will enable them to better respond to market changes. This gives buying organisations the opportunity to invest in the up-skilling and training of their strategic suppliers where necessary. The suppliers will in turn be certificated for their training by the buying organisation, including encouraging their suppliers to migrate information systems to an e-procurement level.

EVOLUTIONARY STRATEGIES OF SUPPLIER DEVELOPMENT

Supplier development should take place within a strategic procurement framework where processes and systems are in place. Supplier development is effective in organisations that value the strategic importance of procurement’s contribution to cost effectiveness and efficient management of the integrated supply chain process.

Evolution of Supply Base Perfomance.jpgSupplier development, therefore, can only be effective in a buying organisation that has a proper procurement division with functional and effective processes and systems.

BENEFITS OF SUPPLIER DEVELOPMENT

Key to Supplier Development is improvement of skills process and technology to the suppliers. This will enable suppliers to improve their skills and understand organisation’s buying requirements. In a well managed buying organisation second and third tier suppliers will have more access and understanding of business requires. The cycle time of communication will be minimised.

In the South African context it is important to do import substitution where local skills and technology will be used and improved during this infrastructure expansion. Supplier development will reduce importation of technologies or systems that will incorporate local value add and this will increase local skills and create sustainable jobs.

Supplier development will also assist in the improvement of managing foreign exchange fluctuations.

A buying organisation should apply commodity strategies where products and services are categorised according to how cost effectively the commodity t be managed to gain or maintain competitive edge in the market place.

BARRIERS TO SUPPLIER DEVELOPMENT

Supplier development’s most serious impediment is a lack of buy-in from top management. The strategic direction of the organisation informs its business model and how the buying organisation will manage its integrated supply chain strategies. If procurement plays a strategic role in a buying organisation, supplier development becomes an integral part of the procurement strategies.

Lack of confidentiality and trust in a buyer-supplier relationship hampers supplier development. A fear of collusion or fraud also creates stumbling blocks.

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.

Poor relationship with suppliers including poor leadership and allocation of resources will hamper this initiative.

Thapelo Petje can be contacted at lemang@telkomsa.net

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