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.
The implementation and the mobilisation stages of the toolkit will be available in early to mid-2022.
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.
|Appoint a senior executive as ‘Executive Relationship Owner’||✓||✓|
|An equivalent senior executive should be appointed within the supplier side||✓||✓|
|Hold exploratory talks with senior supplier executive to agree the framework for this engagement.||✓||✓|
|Hold bi-annual meetings between the executives to share strategy (e.g. service/product roadmaps), review progress and ensure continuous strategic alignment.||✓|
|The Lead Agency Relationship Manager and the Agency Relationship Manager should provide information and support to the Executive Relationship owner wherever necessary||✓||✓|
|Information should be shared as required to promote improved strategic alignment between the parties.||✓||✓|
|Conduct a 360° relationship assessment.||✓|
|Ongoing exploration of opportunities to derive more value for both parties from the relationship||✓||✓|
|Joint business planning should be created and managed by both parties.||✓|
|Cross-agency communication and collaboration||✓||✓|
|Where relevant, leverage supplier forums to resolve relationship management and development issues shared by participants.||✓||✓|
|Increased cross-agency communication and collaboration||✓|
|Confirm that valid contracts (unexpired and approved by the appropriate authority from both parties) for all goods and services are in place.||✓||✓||✓||✓|
|Ensure that contracts are stored appropriately, and obligations (for both parties) are monitored and acted upon.||✓||✓||✓|
|Manage contract changes effectively by following the contract change process (e.g. Contract Change Proposal).||✓||✓||✓|
|Ensure that contract exit provisions are in place.||✓||✓||✓|
|Conduct annual contract reviews.||✓||✓|
|Where relevant, leverage supplier forums to resolve contract management issues shared by participants.||✓||✓||✓|
|Conduct annual contract reviews for contracts||✓|
|Validate contracts to ensure that SLAs are present, unambiguous, and still aligned to organisational needs.||✓||✓||✓|
|Review KPIs and ensure they are appropriate and, where possible, a leading indicator of failure before it occurs.||✓||✓||✓|
|Ensure that measurement and reporting routines are set up and understood by all parties.||✓||✓||✓|
|Schedule performance reviews to take place at least quarterly.||✓||✓||✓|
|Performance reviews should include root cause analysis, problem solving, interim and long-term countermeasures and corrective actions.||✓||✓||✓|
|Where relevant, leverage supplier forums to resolve performance management issues shared by participants.||✓||✓||✓|
|Conduct checks to ensure products/services are delivered on time and are of the quality required.||✓|
|Position cost reduction as the opportunity to remove 'bad cost' from products and services using techniques such as supply chain analysis and value engineering.||✓||✓|
|Open Total Cost of Ownership (TCO) dialogue with the supplier and internal stakeholders.||✓||✓|
|Initiate collaborative working with suppliers and internal stakeholders.||✓||✓|
|Where relevant, leverage supplier forums to resolve cost management issues shared by participants.||✓||✓||✓|
|Have conversations with suppliers about how to use existing products/services in more efficient ways.||✓||✓|
|Hold meetings internally to identify opportunities where spend could be transferred to a Tier 1 or Tier 2 supplier.||✓|
|Consider supplier rationalisation strategies where spend could be transferred to a Tier 2 or Tier 3 supplier.||✓|
|Confirm that a comprehensive risk assessment has taken place during the sourcing process and has been documented including any post-contract mitigation actions.||✓||✓|
|Ensure that post-contract mitigation actions have been implemented and are effective.||✓||✓||✓|
|Ensure that the supplier’s financial stability has been checked in the last twelve months and is satisfactory.||✓||✓||✓|
|Ensure that required Business Continuity Plans are in place and have been tested in the last twelve months.||✓||✓|
|Create a risk register and validate with internal stakeholders and the supplier.||✓||✓||✓|
|Schedule and conduct regular risk reviews.||✓||✓|
|Where relevant, leverage supplier forums to resolve risk management issues shared by participants.||✓||✓||✓|
|Conduct basic due diligence as required.||✓|
|Identify and engage the relevant internal stakeholders to discuss continuous improvement opportunities.||✓||✓|
|Use performance review forums to explore improvement opportunities.||✓||✓||✓|
|Create an open dialogue with suppliers to identify improvement opportunities.||✓||✓||✓|
|Where relevant, leverage supplier forums to identify improvement opportunities.||✓||✓||✓|
|Identify and engage the relevant stakeholders to develop a guided innovation brief for the supplier (where appropriate).||✓||✓|
|Communicate the guided innovation brief to the supplier (where appropriate).||✓||✓|
|Facilitate meetings to review innovation opportunities with the supplier and relevant internal stakeholders.||✓||✓|
|Work with internal stakeholders and the supplier to initiate and manage innovation projects.||✓||✓|
|Agree innovation metrics and report progress.||✓||✓|
|Facilitate discussions related to other value creation opportunities, including topics such as: value enhancement, risk mitigation, time to market, supply chain efficiency, sustainability, investments etc.||✓||✓|
|Identify stakeholders and the procedure for inviting and processing supplier ideas.||✓|
|Where relevant, leverage supplier forums to share value creation and innovation initiatives that are common to participants.||✓||✓|
|Conduct joint reviews of transactional processes and develop improvement plans.||✓||✓|
|Where relevant, leverage supplier forums to target transactional efficiency issues shared by participants.||✓||✓||✓||✓|
|Review contract and ordering processes including the use of Purchase Orders and catalogues.||✓||✓|
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 strategic meetings are a senior forum attended by executives from both parties in the relationship. Its primary purpose is to review, discuss and agree the strategic direction of the relationship. It will review progress against the joint objectives and the joint business plan.
The Relationship meeting is the forum intended to drive the delivery of the supplier relationship strategy via the joint business plan. The forum should be designed to review and manage the relationship development and value opportunities. By exception, it also serves as a point of escalation for any issues that cannot be resolved at the Operational level.
Operational meetings should take place to monitor and maintain performance standards, in line with the agreed contract and joint business plan.
Internal alignment is critical to the success of SRM initiatives, and a consistent application of SRM processes across the agency will provide high quality outcomes. The Procurement Lead should engage relevant stakeholders to ensure continued agency commitment to the joint business plan.