The following article summarizes “Hunting & Farming Suppliers,” a recently published whitepaper that offers a perspective on aligning your organization and talent to drive value throughout the supplier lifecycle.A complimentary download of the full version of this whitepaper is available in the SIG Resource Center.
A flawed operating and resource model is one of the key reasons that procurement organizations aren’t always successful at driving sustainable value in supplier acquisition and management initiatives. Often, a significant amount of work is performed to develop assessment surveys, templates, schedules, scorecards, and metrics. While well- intended, the execution component is often overlooked. Without an alignment of resources, streamlined processes, clear roles and responsibilities—as well as a focus on execution—it’s challenging to complete necessary assessments and metrics in a timely fashion. In our recent whitepaper “Hunting and Farming Suppliers,” we discuss operationalizing supplier acquisition and management and provide lessons learned from the field.
Hunters vs. Farmers in the World of Procurement
Why is it that procurement organizations continue to fail at allocating the right resources to hunt new deals and manage supplier relationships? We will discuss this issue from a talent acquisition and management perspective rather than a process or methodology perspective. Using an analogy from a sales organization and applying its best practices, we will examine constraints that prevent companies from building successful vendor management organizations.
Most sales organizations have two kinds of salespeople: individuals who actively go after and get new deals, aka “Hunters,” and those who grow and nurture existing relationships, aka “Farmers.” Borrowing this concept, we can better explain why procurement organizations lack the ability to allocate adequate resources and effectively manage supplier relationships to add value consistently and holistically throughout their enterprise.
Understanding the Supplier Lifecycle
Many procurement organizations fail to control and manage the entire lifecycle of a supplier. The following chart depicts the three phases of the supplier lifecycle and summarizes key attributes of each.
The focus, nature of work, and required skills are different depending on which phase of the lifecycle the supplier is in. When organizations try to manage suppliers broadly throughout this lifecycle, they fail to understand the nuances of each phase and adopt the various types of talent needed to create value.
Hunting for New Suppliers
It is imperative to get the right suppliers and the right deal structure up front. In order to hunt good deals, an organization needs
1) Stakeholder Management: Building strong relationships with key supplier organizations and creating opportunities to hunt is crucial.
2) Subject Matter Expertise for Hunters: Structuring a good deal requires effective and appropriate techniques, tools, timing, and interdependencies.
3) Timely Market Intelligence and Insights: Having a thorough and timely understanding of the supply base, competitive dynamics, and changing market environment is critical to securing favorable deals with the right suppliers.
4) Competitive Bidding Process Knowledge or Strong Negotiation Techniques: A good hunter knows which techniques to use, when to use them, and how to develop a strategy to execute them effectively.
5) A Highly Efficient Pool of Execution Resources: Execution is a critical function and needs a centralized, dedicated resource pool that supports various sourcing initiatives that stem from stakeholder management and category management activities.
Getting the right deal and the right supplier is a critical step in the procurement value chain. However, it gets you only halfway there. Value is created when procurement sources and negotiates (hunts) deals. Value can be documented when it is contracted and realized when it is managed. Often the full potential of savings or value that we as procurement professionals claim or report isn’t realized—especially when we don’t have a systematic way to manage those contracts throughout their lifecycle.
Lack of dedicated resources to support the process
No proper governance defined among involved parties
No enabling technology (though not a requirement)
Inadequate or incomplete data
Lack of skillsets needed to farm supplier relationships
Not enough management visibility and enforcement for consistent management of external resources
The hypothesis is the same one we use when we diagnose sourcing bottlenecks. There seems to be an execution problem. The following graphic illustrates flaws in the current operating model, shows organizations adapting to manage suppliers, and proposes a newer, more efficient operating model.
Supplier management needs to centralize tactical support in order to effectively turn the cogs—one supplier at a time—similar to how procurement centralizes tactical work for purchase requisition conversion by housing its sourcing and contracting processes in shared service centers. Setting up supplier management projects, administering and managing supplier performance surveys, collecting and organizing supplier risk data, and scheduling and facilitating management cycles with suppliers and stakeholders are tactical activities that can be addressed effectively through a shared service model.
To create shareholder value, organizations need human resources, which are internal to the organization, and suppliers, which are external. It is too costly for companies not to manage their supplier resources effectively.
Companies spend significant time and money managing internal resources through human resource departments and management resources. Almost all organizations establish review cycles, career paths, and financial incentives to maximize employee performance. Unfortunately, the same is typically not true for managing external suppliers. Chief Procurement Officers need to communicate that neglecting to effectively manage company supplier resources is costly. And they need to attract the appropriate attention from executives to convince them to invest in supplier management capability over the long term.