This toolkit has been developed for programme managers who are looking to set up and run a supplier management programme in their agency.
It will assist you with ongoing supplier management practices within your agency and add value to those that have only just begun their supplier management journey. It provides best practice guidance for managing strategic supplier relationships and will ultimately strengthen your overall supplier relationships.
This toolkit consists of the following three sections:
To set up a successful supplier management programme, you should complete:
The supplier management value proposition helps you to identify additional value from strategic supplier relationships beyond the original contract. The process sets up supplier management initiatives to capture additional value through collaboration with strategic suppliers.
Create your supplier management value proposition by following the steps outlined below. This will create a clear line of sight to your strategic objectives.
Further information on the Government’s priority broader outcomes is available on our website.
The value proposition predicts additional value through effective management of strategic suppliers. The key principle is to engage stakeholders and secure support for the programme.
It is important to develop a method to capture direct and indirect value.
Direct value is measured financially through factors such as:
Indirect value can be documented through case studies that are validated by the agencies.
SRM focuses on collaboration and finds ways to recognise the supplier contribution. This may include direct financial recognition, supplier awards and positive publicity.
The segmentation process helps you to understand risks and opportunities presented by supplier relationships. It applies a range of criteria against each supplier to determine operational criticality and strategic importance.
Segmentation allows you to make informed choices on allocation of resource, time and effort. It also allows you to deliver the expected contracted value and create additional value beyond contractual obligations.
The segmentation process is broken down into three steps:
In a category segmentation, group your contracts according to products and/or services. For example, professional services, utilities, IT hardware and software as a solution.
You should then segment categories based on the criticality of supply and expenditure to create a clear picture of how significant each category is. You can do this by:
The category segmentation should be completed annually and endorsed by relevant stakeholders and the procurement team. The output identifies each category’s criticality to the business.
In a supplier segmentation, group your suppliers based on their value potential and criticality to differentiate between suppliers within the same category. You can do this by:
This process assesses the individual suppliers by using a set of weighted criteria; suppliers are positioned based on criticality and value potential.
Criticality considers factors including:
Value potential includes factors such as:
The output places each supplier into one of the nine boxes, as illustrated in the figure below.
The nine-box model provides guidance on how each supplier should be managed. The focus of supplier management is dependent on where the supplier sits in the 9-box model below.
After each segmentation cycle, the validation stage ensures you are managing suppliers at the correct tier and you get stakeholder buy-in.
Complete the validation using the following steps:
Look for suppliers who cross several categories. For example, if a supplier is segmented a number of times (eg in different categories) as a Tier 2 supplier, there may be a case for promotion to Tier 1 supplier. This situation is something that can also be resolved based on ‘feel’ or the opinions of individuals within your organisation.
The level of engagement required with a supplier can be determined by dividing the chart into tiers to help you decide how to allocate resources.
Suppliers in this tier should go through all the recommended engagement strategies.
Very similar to those at Tier 1, however the executive level sponsors may be less senior, and meetings will be less frequent.
Focus on basic contract, risk, and performance management where deemed necessary. There shouldn’t be a need for relationship management activities for suppliers in this tier.
Suppliers in this tier will have relatively low value potential and relatively low criticality. Engagement strategies at this level should focus on transactional efficiency and maintaining governance.
The following section lists the specific engagement strategies for the supplier relationships from the segmentation process. The ’ticks’ specify the activities that are essential under each tier.
The arrangement of structured review meetings with the supplier’s client-facing team and internal stakeholders should be arranged by the Relationship Manager, once roles and responsibilities have been assigned.
These meetings should be established at a set frequency throughout the life cycle of the supplier relationship. This should be consistent with the level of interaction required by the engagement strategy. The list of attendees required to join each meeting will depend on the type of meeting. The type of meeting can be classified into three levels:
Consider pre-existing and well-functioning governance structures and scheduled meetings. Where robust structures are already in place, there may not be a need to change. Adding an agenda item to address supplier management objectives may be sufficient.
The type and frequency for each type of meeting are in the tables below. This allows a degree of flexibility for face-to-face interaction with suppliers. As a minimum, the subsequent meeting frequencies should be followed.
The agenda for these meetings should also be structured and agreed in advance with internal agency participants and with the supplier.
The New Zealand Government relies heavily on suppliers to deliver many different products and services. Robust implementation of a clear supplier relationship management framework, processes, and tools allows us to leverage the full potential of government as a customer.
There are several activities which form a supplier relationship management framework. Critical elements to consider include:
Supplier relationship management (SRM) offers the potential to create and deliver value that extends across the organisation. Listed below are examples of value opportunities that can be approached collaboratively with key suppliers.
The supplier should adhere to the documented measures to capture the intended value of the contract. These include:
Use a relationship model that encourages the sharing of information. This can include supplier forums that focus on the sharing of new ideas or implementing discussions around innovation into strategic meetings. Ultimately, a supplier will be more willing to discuss their product/service developments. In addition, the better they understand your own challenges the more likely they will increase supplier willingness to design innovative solutions.
A ‘customer of choice’ is an organisation that, through its practices and behaviours, positions itself as a preferred customer to its key suppliers. SRM encourages the likelihood of becoming a ‘customer of choice’ through emphasis on collaboration, multi-level supplier relationships and partnership development.
Customers of choice enjoy a range of benefits including:
What makes a customer attractive to a supplier:
It is generally considered that ease of doing business is the one element that will sustain a healthy relationship and contribute most towards being a customer of choice. This can be achieved by paying attention to the attributes that suppliers deem most important in building a successful relationship.
The benefits of improving transactional efficiency are clear in terms of cost and time, however, transactional efficiency is also important. In many cases, simple transactional details such as timeliness and payment improve supplier relationships.
Working collaboratively with suppliers to better anticipate changes to risk profiles. Also, proactively develop joint mitigation strategies with suppliers.
Working closely with suppliers on sustainability to better understand and mitigate risk exposure. This will drive improvement and enable you to achieve your policy objectives.
SRM achieves better outcomes for both parties through reduced time spent negotiating, less legal involvement, more responsible allocation of risk, and more win-win outcomes.
By implementing the SRM governance model principles, you create structures and behaviours to resolve issues quickly and equitably. This can avoid costly litigation and breakdown of strategic supplier relationships.
SRM value is based on a set of value opportunities on the supplier’s side, that will be applicable to you. The supplier value opportunities are key to obtaining engagement and support from suppliers.
Stakeholder engagement and support is essential for the success of the supplier relationship management (SRM) programme. The stakeholder management tool helps identify internal and external stakeholders, establish current stakeholder influence and support for SRM. This helps you develop appropriate management strategies and engagement plans.
An effective communication strategy facilitates the change management needed to improve supplier relationships. Your communications strategy should establish clear objectives, audiences, messages, tools and activities, resources and timescales.
Your objectives are the key to the success of your communications strategy. They should ensure that your communications strategy is organisationally driven rather than communications driven. Your communications activity is not an end in itself but should serve and hence be aligned with your objectives. Ask yourself what you can do within communications to help you achieve your objectives. Work with your own agency communications colleagues and protocols.
Clearly defined roles and responsibilities across all activities and interactions with the supplier is fundamental to effective supplier relationship management.
A typical approach involves listing all activities and interactions with a given supplier and allocating responsibility, accountability, consultation, and information against the supplier management roles identified in the operating model.
In the case of more complex supplier relationships that span several agencies, the output should be a single RACI for each supplier relationship.
Other approaches to the RACI model are described under ‘Set up governance and project structure’.
The internal and the supplier kick-off meetings bring together the key supplier relationship management stakeholders. Attendees for the internal kick-off meeting may include the Executive Relationship Owner, Relationship Manager, and other internal stakeholders. Attendees for the supplier kick-off meeting include the Executive Relationship Owner, Relationship Manager, and the Account Manager. The supplier will likely have attendees representing the same functions from their business.
The objective of these meetings is to agree on the approach, activities, milestones, timelines, roles, responsibilities and expectations for the supplier relationship management programme.
A typical internal kick-off meeting agenda will consist of:
In addition to the meeting agenda items from the internal kick-off meeting, a typical supplier kick-off meeting agenda will also consist of:
The mobilisation stage acknowledges that each use of the SRM toolkit will be unique to each situation – and to each relationship between supplier and internal stakeholders. The templates and tips in the set-up and implementation phase are there to help you progress towards a joint business planning workshop and ultimately the creation of a joint business plan.
The SRM value proposition template and the kick-off meeting template can be used by agencies and suppliers to help identify potential value creating opportunities. These can be brought to a joint business planning workshop.
This workshop is used to develop and commit to a joint business plan. The workshop will review and validate core elements of the SRM programme, including the supplier value proposition, the state of the relationship, value creation opportunities, engagement, governance, and the joint business plan.
A typical workshop agenda should cover the following:
Agenda | Activity | Output |
---|---|---|
SRM programme overview | Recap concept aims and objectives | Common understanding of SRM and its aims |
Guiding principles (Relationship Charter) | Review and agree vision for the relationship and guiding principles | Stakeholder support for new ways of working |
Value opportunities | Review and validate the value opportunities | Agreed focus for value creation |
Value creation | Explore value opportunities and develop work stream content for joint business plan | Rationalised and prioritised value opportunities |
Governance | Agree governance model | Defined meeting structure and schedule, RACI, reporting etc |
Create joint business plan | Populate the joint business plan template | Draft joint business plan |
Next steps | Define 30, 60, 90-day plan | Create joint business plan momentum |
Joint business plan (JBP) is the vehicle to manage and deliver joint objectives for the New Zealand Government and suppliers. The JBP serves a dual purpose as a planning and a reporting tool.