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Value
procurement: Strategic relationships building with suppliers

 

Abstract

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Suppliers
hold the key to any company’s competitive advantage and a trump card to G1 business growth and
success. In spite of being such an essential entity in an organization, supplier
management is one of the most underrated procurement activities. Ensuring the
best prices through strategic sourcing is no longer perceived as a strategic
capability of the procurement function. Organisations have realized that they
have become more reliant on suppliers regarding the G2 G3 G4 security
of supply innovative power, on-going cost savings, G5 and
corporate social responsibility as a result of further outsourcing of non-core
competencies.
Strategic partnerships are one of the critical corporate agendas of many global
organizations, and Supplier Relationship Management (SRM) is G6 G7 G8 G9 G10 considered as a factor that can make
a significant diffG11 erence.G12 G13 G14 G15 G16 G17 

 

Introduction

As the supply chains of
today require collaboration at various stages and from various functions,
companies are frequently looking for innovative
methods to leverage existing and new supplier relationships for their
expansionary pursuit. Supplier Relationship Management (SRM) is G18 G19 G20 G21 a key way to connect the interests both
within the organization and with the extended supply chain. SRM identifies and
engages the right stakeholders to create ownership of the relationship, drive
effective communication and align strategic objectives. This results in
continuous efficiency improvements, such as risk mitigation, cost reductions,
or improved go-to-market times just as well as an improved potential for
disruptive innovation. G22 

 

The
process involved in value procurement

 

The main objective of
value procurement G23 is to select vendors on factors other than
only prices, such as expertise, quality, etc. It is a continuous cycle which
involves segmentation, governance, performance management G24 G25 and
development.

 

G26 

G27 

1.     Supplier
segmentation

Supplier segmentation is
the process of categorizing suppliers based on various parameters and criteria
and identifying the key suppliers. These suppliers are then prioritized into
various levels. The criteria and parameters are defined based on business criticality
and reflect the strategic importance of the suppliers to the organization. 3rd

 

 

 

2.     Supplier
governance

After
segmenting the suppliers, it is essential to establish an efficient governance
process internally and assigned ownership of supplier relations. It is
essential to involve the right stakeholders in this process as the ownership
lies outside the procurement
of the organization. This governance committee can defiG28 G29 G30 G31 G32 G33 G34 ne
and drive the strategic roadmap together with the supplier. Top-level strategic
objectives with each priority ne1 suppliG35 er
are to be mutually agreed at the top level on both sides. A set of measures and
metrics are to be monitored periodically as a part of performance management
process.G36 G37 G38 G39 G40 G41 G42 G43 G44 G45 G46 G47 

 

3.     Performance
management

Performance management
involves continuous tracking of operational measures and metrics which have
been mutually agreed by the committee members. A supplier scorecard needs to be
developed consisting
of these metrics, and the suppliers need to be given score accordingly.
Continuous monitoring is required, and any deviation needs to be addressed
immediately by identifying the cause and taking the necessary actions.G48 G49 G50 

 

4.     Supplier
development

Supplier development
enhances the value if the entire value procurement process. It involves the
development of business relationships for long-term initiatives such as mergers
and acquisitions, market penetration, G51 G52 joint
ventures, etc.

 

Value
procurement enablers

There are seven enablers
to establish and enhance a value procurement framework.

Strategy, process,
structure, people, technology, performance management and risk management. These seven
enablers form the core of what is known as supplier relationship management or
supplier quality management. All these enablers are interrelated and need to
perform incoherence to achieve the desired outcome. G53 

 

Strategy: involves identifying
the objectives that an organization wants to achieve through efficient value procurement
and supplier relationship management. This involvesG54 G55 G56 G57 G58 G59 

 

Process: is identifying the
activities that the organization performs and how supplier relationship
management can help it. The stages involved in value procurement and supplier
quality management process have been discussed in the earlier part of the
articles.G60 

 

People are the set of unique
competencies that the organization needs for a supplier quality management
program. This involves the following steps. G61 

 

Structure refers to generally how
value procurement and supplier relationship management is structured in the
organization and how the roles and responsibilities are established. It
involves building a dedicated governance structure to manage a relationship
between the supplier and the organization.G62 G63 G64 G65 G66 

 

Technology
is an important part of the supplier related issues. The technology involves
support systems required to enable value procurement or supplier relationship
management. G67 It
is an important entity as it enables value and creates transparency and
efficiency.G68 G69 

 

Performance
management involves the
measurement and improving the relation between your suppliers. The best
technique is applying balanced scorecard. G70 Balance
scorecard links strategic direction and execution. The drivers and metrics are
to be decided upon by the steering committee, and weight to each metric needs
to assigned after a thorough analysis.G71 G72 G73 G74 G75 

 

Risk
management
involves identifying and mitigating risk. The sources of potentially disruptive
events can be political, business, environmental or technological.
Identification of risk is done in coherence with the supplier. The next step
involves developing a comprehensive risk management approach. After which the
risks are materialized financially based on their occurrence and impact.G76 

 

Challenges
for value procurement

Employing
value procurement or supplier quality management requires a substantial amount
of resources be it regarding money and effort. It is also very much underrated
and underutilized by many organizations. Also, very few organizations have been
successful in adopting value procurement proactively and strategically. Many
perceive it as an activity without any strategic value. Furthermore, getting
the suppliers together and make them work in coherence with the steering
committee is very challenging. Adding to the costs value procurement is quite a
time taking in the initial stages but once implementG77 G78 G79 G80 G81 ed
successfully the results are quite fast.G82 G83 

 

The
road ahead

Value procurement is a
strategic and growing function in procurement. It has a come a long way since
the past decade and has seen quite significant changes. It has evolved from a
monitoring activity into a more strategic and collaborative function. It is a
long game strategy which can deliver benefits if implemented successfully. It
is a coordination of multiple activities and anticipating quick results is not
appropriate. Value procurement is a long-term sustainable program.G84 
The future is secure, and we might see few more innovations in various
verticals like performance management, technology, and risk management. G85 G86 

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