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Why create a Supplier Standard?

Tuesday, 04 December 2018

In your business, you may deal with any number of suppliers. All of your suppliers are critical to your business, because they provide the products that allow you to serve your clients.

But if your suppliers are so critical to your business, do you have a set of standards that apply to them? Many businesses don't, and it's a missed opportunity to make delivery and service more robust.

Some background on the value that suppliers provide

It is easy to see yourself as the customer of a supplier, and to treat the relationship as a purchase relationship, rather than a partner relationship. The power balance is much more like a partner relationship, however.

This is also how customers increasingly understand the supply chain. Consumer expectations go far beyond the basics of how you provide service to them.

Consumer expectations are what caused Nike to implement supplier standards. Backlash about sweatshop labour in the Nike supply chain was the incentive for the company to make significant change. Eric Verhoogen, Associate Professor of Economics and International Affairs at Columbia University, argues that in some cases - as the Nike case - establishing standards won't happen unless there is external intervention.

Customer backlash is one type of intervention that forces change.

Similarly, a former CEO of Tiffany, Frederic Cumenal, wrote about traceability of supply in the supply chain. In a company like Tiffany, whose trade is in diamonds, that traceability is essential for both quality and ethics.

Some of the world's most successful companies take a very definite approach to their supplier relationships. Japanese companies like Toyota and Honda go far beyond procurement. In their cases, the supplier relationship is much like an employee relationship.

These companies measure the way their suppliers work. They set targets for them, they monitor their performance at all times. Why? Because Toyota and Honda expect their suppliers to meet their targets on quality and delivery. Such companies don't rely on suppliers to reduce wage costs. Instead, they believe that innovation capabilities are more important than savings.

When you have the right standards agreed with your suppliers, you can achieve:

greater levels of innovation
higher levels of efficiency
faster production.

Benefits of setting supplier standards

What your supplier standards cover depends on your industry, and the types of suppliers that provide services or products to you.

Improve customer loyalty

Three partners at Bain & Company, who work in customer strategy, marketing tech, and analytics, suggest that there are ten elements of customer loyalty that impact on ease-of-doing-business. The partners - eric Almquist, Jamie Cleghorn, and Lori Sherer - suggest that your supplier should provide both objective and subjective value. The types of elements of most value to you are what will make

(a) your life easier

(b) your supplier relationship better.

The research by Alquist et al shows that if you have a set of standards that you negotiate and agree with

your suppliers, you can deliver higher value than your competitors.

Minimize data risk

Creating supplier standards allows you to minimize risk, particularly when it comes to your data.

When you work with companies like myFLO, you want to make sure that your supplier can help you with compliance, but also with those rare - but devastating - events you hope you will never face.

Leandro DalleMule and Thomas H. Davenport explain some of them in the Harvard Business Review. Their recommendations are that your software supplier standards should also cover situations like:

theft prevention
robust data governance controls
how the data architecture is created for reporting now and in the future.

When you are thinking about purchasing field service software to drive your business, make sure that your supplier can deliver maximum yield and maximum flexibility.

Achieve great visibility

Visibility over your suppliers' performance can form part of your risk mitigation strategy. This is really where your supplier standards start interacting with your procurement processes.

When onboarding a supplier, you may demand particular certifications. You might track their performance,
or research their financial positions. When you are in a large or growing company, the last risk you want to
be facing is an unprofitable supplier. It impacts you, it impacts your clients, and it impacts your reputation.

Agreed standards allow you to rectify performance issues and optimize that performance over time. The
bonus is that by standardising your relationships, you can speed up your supplier onboarding. Standards
make your requirements known, and then allow you to build systems. We wrote about that here.

Help your suppliers

Setting standards helps you to help your suppliers. If you are wondering why you would want to do this,
stay with me.

Putting in place a known Service Level Agreement (or SLA), both you and your supplier are suddenly crystal
clear about what is required. You have a contractual obligation that your supplier is required to meet. And it
gives your supplier meaningful targets.

A good SLA allows both of you to monitor and improve the service provided during the relationship. If
performance isn't up to scratch, you also have a central agreement against which to demand improvement.

Bob Reiss at Entrepreneur argues that your approach to your suppliers needs to be part of your strategic
plan because, especially when it comes to technology, you are dependent on your suppliers. Your suppliers
can impact your:
1. quality - has a direct impact on satisfaction of your customers
2. timeliness - speed impacts how you deliver your services and/or products
3. competitiveness - a great supplier can really give you the edge over your competition
4. innovation - great suppliers will understand your company, industry and needs and will help you tweak
and tweak until your new idea flies.
5. finance - good relationships with your suppliers can allow you to negotiate if your cash position
demands it.

Grow together over the long-term
When you take the time to learn everything you can about your suppliers, you increase the chances that you can work together effectively over the long-term.

Take the time to understand their culture and operations as much as possible. Consider sharing sensitive
and critical information and knowledge with each other. Only then will you be able to achieve mutually
beneficial outcomes by staying in the relationship.

This may even be valuable in pricing. If you can track and surface data about costs, then you can work with
your proposed suppliers towards your targets. Then, if you achieve it together, you have proved that the
collaboration is valuable on both sides.

A partnered approach to service supply is how we helped one of our customers to drive significant
innovations, and long-term company growth.

We've been helping companies like yours to set the standard, since we began.

To find out how myFLO can work with your company to achieve your strategic outcomes, talk to our experts
today. For a confidential discussion, call 1300 78 46 60.