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.
|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.
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:
|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.