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Supplier Of The Year White Paper

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Supplier of the Year programs, with their objective performance reviews, can lift business partner performance.Performance improvement is a key objective in the evolution taking place in …

Supplier of the Year programs, with their objective performance reviews, can lift business partner performance.Performance improvement is a key objective in the evolution taking place in retailer/supplier relationships where more retailers are embracing the business partner relationship concept with a change from suppliers being seen as just a “Vendor” to one where they are regarded as a “Strategic Partner”. The journey from “Vendor” to “Supplier” to “Key Supplier” to “Strategic partner” is being driven by three key factors: economic conditions and competition; the demand to provide consumer value and the need to better manage changing retailer/supplier relationships.

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  • 1. Improve Business Partner performance with a Supplier of the Year program.Supplier of the Year programs, with their objective performance reviews, canlift business partner performance. The result is a Win : Win for both retailers andtheir suppliers; with a focus on working together to fulfill consumer needs,resulting in improved performance and a more profitable relationship.Performance improvement is a key objective in the evolution taking place in retailer/supplierrelationships where more retailers are embracing the business partner relationship concept with achange from suppliers being seen as just a “Vendor” to one where they are regarded as a “StrategicPartner”. The journey from “Vendor” to “Supplier” to “Key Supplier” to “Strategic partner” is beingdriven by three key factors: economic conditions and competition; the demand to provide consumervalue and the need to better manage changing retailer/supplier relationships.Retailers Better managing the relationshipFor their part, retailers are locked in an intense With the implementation of ECR, and evolutioncompetitive struggle for market share and, as a to a “Strategic Partner”, consumer productsresult, are transforming their businesses and companies will need to focus on two key areasrequiring suppliers to add value in two core areas: to enhance product performance and improve Value chain: The supply chain is evolving into a their business with retailers: “Value Chain” and is often defined as being:  Build a more agile, responsive organisation “from the supplier’s supplier to the customer’s that efficiently and effectively responds to customer”, identifying the key relationships and specific retail customer needs value added processes along the way. With  Empower account managers and teams to extended supply chains, particularly sourcing become more broad-based business from low cost countries, and the need to be managers with a wider array of skills to drive price competitive, best practice retailers are business value for both the retail customer moving to Efficient Consumer Response (ECR), and the supplier. a way of doing business that involves trading partners working together to fulfil consumer Customer relationships have evolved from the wishes better, faster and at less cost. “one point-of-contact” sales representative to Relationship: Retailers today do not just want “multiple points-of-contact” coordinated by a their suppliers to sell them products. They want key account manager who orchestrates the them to become “business builders”, helping to activities of a multifunctional team. optimise the retailer’s profitability with a deep understanding of their specific business needs, as a “Strategic Partner”SuppliersFor suppliers, today’s key account relationships arebecoming tremendously complex, with shiftingcustomer needs and growing polarisation in theretail market, requiring greater agility andresponsiveness on the part of consumer productscompanies. In this environment, suppliers seeking tomake the journey to become a strategic partnerneed to work with their retailer partners to: Implement ECR Better manage the relationship, and To improve performance in this area, account Support Supplier Performance Management managers and teams must better understandEfficient Consumer Response the retailer’s business and shift from a focus onECR is based on two key principles: “selling products” to a focus on “addressing the Consumer focus: A commitment to the belief customers’ business requirements”. They will that sustained business success is about need to develop new skills which will enable providing consumers with products that meet or them to address shifting retailer needs with surpass their demands and expectations. greater agility and impact. To help them Working together: Maximum consumer value is perform this role more effectively, suppliers will possible only when organisations work together, seek ways to provide their account managers both internally and with their trading partners, to with a holistic view of all customer activities, improve efficiency and effectiveness. including greater access to information. "The greatest change in the way business is being conducted may be the accelerating growth of relationships based not on ownership, but on partnership” (Peter Drucker)
  • 2. Supplier of the Year ProgramSupplier Performance ManagementSPM is absolutely critical in the “Strategic Partner” journey, using the process of regular reviews to measure,analyse, and manage supplier performance and relationships to improve quality, reduce costs, mitigate supplyrisk, and drive continuous improvement in supply value. The discipline of SPM is vitally important and recentresearch by the authoritative Boston-based research company, the Aberdeen Group, confirms the intuitivelyobvious conclusion that using SPM programs will produce higher value supplies.Their research found that companies with SPM On-time Improvement Price Quality Serviceprograms achieved performance improvement in Deliveryevery category that was studied - an average SPM program 23% 23% 21% 21%supplier performance improvement of more than 20%across the four main areas - compared with those No SPMthat had no formal SPM program. 13% 11% 5% 17% programThey conclude that “organisations that use formal supplier measurement programs outpace their peers in on-timedelivery, quality, service, price competitiveness, and other supplier performance areas”. Their recommendationsare: “Organisations that don’t have formal SPM “When you measure and communicate supplier programs should investigate the benefits of performance regularly, suppliers improve their cost, developing them. quality and responsiveness. Done in an automated, They should also develop standard supplier systematic way, performance improves dramatically, performance metrics, involve suppliers and include in some cases by over 50%.” (Source: Aberdeen Group) key internal stakeholders in the process.”The “Strategic Partner” JourneyThe journey from Vendor to Supplier, to Key Supplier, then a“Strategic Partner” has four relationship stages: Early: “Red Zone”; Low performance ratings; New/occasional, vendor; “Me too” products, price-based; Irregular contact/orders; Strictly transactional relationship; Efficient: “Orange Zone”; Below average performance ratings; Low consumer franchise; Some USPs; Regular contact (one point); Moderate importance to retailer; Proficient in supply and service; Delivers results; Effective: Average/above ratings; Proven products, solid USPs, high value, ranked No. 3-5 in category; Moderate/growing consumer franchise; Beginning ECR; Key account rep main contact, frequent call cycle; Shares responsibility for results. Excellence: “Green Zone”; Highest ratings; A Strategic Partner can be defined by a number of key characteristics, some are: Suppliers are at different stages of the journey to “Strategic Partner”. It is important that retailers understand where each key supplier in their portfolio sits so they might, together, develop strategies for improvement. SPM, with its regular performance monitoring of KPIs, and reward for excellence through Supplier of the Year programs, is a vital tool to plot the journey. It helps suppliers to improve their performance and reach their full potential and cement their “strategic Partner” relationship position. “The purpose of investing in a relationship with a supplier is to improve their performance in fulfilling the needs of the buying organization, thereby improving the buying organization’s performance and creating mutual benefit.” (Chartered Institute of Purchasing & Supply)
  • 3. Supplier of the Year ProgramSupplier of the Year programsSupplier of the programs are more than just a vote, or a popularity contest, they are about communication ofperformance expectations and formal reviews, often two-way, to provide feedback on how suppliers areperforming against those expectations.The five “Rs” of a successful Supplier of the Year program process are:  Rate supplier performance – Your key stakeholders rate performance on your KPIs and key metrics;  Report - Provide key stakeholders with reports on results, by supplier and suppliers with their own reports;  Review - Meet with suppliers to identify strengths and prepare action plans to address underperformance;  Repeat the rating, reporting and review process at regular intervals (2-4 times a year) to monitor progress;  Reward excellence, and encourage competition, with Supplier of the Year awards and publicity.In Australia, only a few retailers undertake formal annual, or quarterly, performance reviews with their suppliers,using Key Performance Indicators and a formal rating process that looks at the entire business relationship.Woolworths invite their 2000 plus suppliers to register for their Trade Partner Program each year. Suppliers areassessed across various areas of Woolworths’ business such as Buying and Marketing, Finance, Replenishment,Stores, eBusiness and more. Each product category is scored on a number of core criteria, KPIs specific to eachand a sales growth score. Quarterly reports are provided to suppliers and scores are aggregated annually as thebasis for awards, announced at a gala dinner.Myer automatically enters all their 800 Trade Partners from their merchandise, concessions, supply chain andbusiness support areas into their Supplier of the Year program. KPIs differ by category, with merchandise suppliersassessed quarterly on financial performance, delivery, in-store support and partnership. Top ranking results arepublished quarterly and the annual awards are announced at a gala ball.The Mitre 10 Supplier of the Year program involves key suppliers being reviewed by their 500+ stores, Business andCategory Managers and DC Managers. Suppliers are rated on their performance on fourteen KPIs in three areas:DIFOT, Store Representation and Support and Business Partnership. Suppliers also undertake a self-assessment. Mitre10 Managers receive a range of reports on their category and each supplier gets a full report on their ratings andrankings, with detailed breakdowns by State and verbatim comments from store and National Office assessors.ImplementationThe advent of web-based, multi-user assessment software makes the operation of SPM easy. We can work with you toimplement a program internally, or we can manage the program on your behalf on a fully outsourced basis. Our Performware™ platform is a suite of non-prescriptive on-line tools designed to add value and drive business partner performance improvement. Based on proven Performance Management techniques, it allows organisations to review their business partners and agree on action plans to improve performance and to better manage the relationships - for mutual benefit. Retailers can assess the performance of key supplier partners, using their own KPIs and importance weightings, with input from multiple stakeholders from various departments, and stores. Suppliers should also do a self- assessment for comparison and as the basis for engagement and discussion.On-line surveyPerformance KPIs are customised to suit individualretailer needs. Nominated assessors receiveautomated invitation emails with a URL link, logindetails and password to access the survey. Assessorsrate supplier performance on each KPI, using a five ornine-point scale with customised descriptors for eachrating point. Assessors roll their cursor over the scoringballs and select the one that best indicates theiropinion. A pop-up comments box enables supportingor explanatory comments to be fed back to thesupplier. There is also a section to capture overallcomments and strengths and areas for improvement. “If you want to have early warnings about possible problems in a relationship and a way to surface issues andaddress them collaboratively, you have to have a process to take the temperature of the relationship, comparing its effectiveness up against agreed metrics, and then talking about the results.” (Vantage Partners)
  • 4. Supplier of the Year ProgramRetailer ReportsReports are supplier specific, aggregated byproduct category, in graphics and dashboardformat – with “Traffic light” colours highlightingperformance bands - plus detailed tables,providing:  Overall scores – In total and by KPI  Ranking – Total, by category, key measures  Rating comparison – Between: o Product category o Geographic region/State o Assessor/stakeholder groups  Scores comparison and benchmarks: o Supplier of the Year score o Supplier self-assessments - average o Top quintile (20%) average o Average all suppliers o Lowest supplier score  Supplier matrix – Two-dimensional charts Supplier Reports Supplier reports are individual, showing their own scores and performance, benchmarked against all suppliers and within their category, providing them with:  Overall scores – In total and by KPI  Ranking – Total, by category, key measures  Rating comparison – Between: o Geographic region/State o Assessor/stakeholder groups  Scores comparison and benchmarks: o Supplier of the Year score o Supplier self-assessments - average o Top quintile (20%) average o Average all suppliers The main reasons suppliers support a Supplier of the Year program are: Formal review – increased engagement; Benchmark against peers – Competition; Improvement in relationship – better understanding of expectations; Recognition – reward for effort.SummaryThe journey from vendor to that of a strategic partner is not easy. It requires paradigm shifts by both parties,particularly in attitudes, requiring openness and trust, information sharing and a commitment to meetingconsumer needs. But it is a journey worth making with the result a Win: Win, for both, of improved performanceand a closer and more profitable relationship. For suppliers, the Pareto principle will be a deciding factor: the 20%that account for 80% of a retailer’s business will need to make the journey in order to join the club, whilst those inthe next level will need to show they can improve in order to force their way into the top 20%.A Supplier of the Year program, with associated performance reviews will assist both retailers and suppliers toobjectively assess performance and drive improvement. Our experience is that suppliers are keen to participate in,and contribute to the costs of, Supplier Performance Management reviews. They see value in the constructivefeedback and the ability to access results on-line to identify their weaknesses and put action plans in place forimprovement - resulting in higher levels of engagement and a closer business partner relationship.Contact: Ph: (02) 9959 3815Ron Latham, Managing Director Email: ron@lathamconsulting.com.auLatham Consulting Pty Ltd Web: www.performware.com.au41b Spruson Street, Neutral Bay, NSW 2089 www.lathamconsulting.com.au "The greatest change in the way business is being conducted may be the accelerating growth of relationships based not on ownership, but on partnership” (Peter Drucker)