Supplier Approval and Improvement Programmes

 In the fourth article in our series dealing with Supplier Development, David Birch of Purcon addresses the topic of Supplier Approval and Supplier Improvement Programmes.

The last three articles have laid the foundation stones for decisions we all have to make about what sort of suppliers we need, how to prepare them and how to assess them. In simple terms the techniques utilised in these processes are designed to ensure that your suppliers, either existing or potential, will work harder for you than they will for any of their other customers.

The initial decision of whether a company should make or buy, enables the purchaser to examine the relative strengths of their own business and that of their supplier. The knowledge gained from this process lets you identify the best ways to work with the supplier to ensure that the relationship will be mutually beneficial. Having worked very hard to reach this point in the buyer/supplier relationship, it would seem to make sense to spend a little extra time and effort, in setting up an approval system for your key suppliers.

The Bait

In the previous articles dealing with Supplier Preparation and Supplier Assessment, we identified that the buyer can use positioning and persuasion as tools to influence the supplier. The same is true of Supplier Approval - used in the right way it can suggest to the potential supplier that their relationship with you is, somehow, exclusive and privileged. This may be - or may not be - true. It doesn’t really matter as it will put you, the buyer, firmly in the driving seat in terms of controlling the relationship.

Many times during my career, I have been asked, by suppliers who are hoping to supply my company, “How do I become an approved supplier?” What an invitation! By asking this question, the balance of power has been firmly passed to me, the buyer. The supplier may not have realised it, but it gives an ideal opportunity to lay down the basic ground rules.

The potential supplier, however, may not ask this question. It will then fall on you to introduce the subject. If your company already has a scheme to identify and approve key suppliers, all well and good. If it does not, then you may want to discuss the introduction of such a scheme with your directors. The benefits will become clear.

If you are sure that the supplier fulfils all the requirements to become a key supplier then you can ask, “Are you interested in becoming an approved supplier?” The bait should be too tempting to resist. In the very unlikely event that the answer is “no”, I would suggest that the relationship is doomed to failure anyway.

As a consequence, the process of supplier approval becomes essential to the way that you will deal with a supplier, and will also ensure that they work within your parameters.

It’s not all one-way traffic; the supplier also gains from this accreditation. An approved supplier, after all, has a degree of security and continuity. In recent years, becoming an approved supplier has become a much sought after goal. The supplier gains credibility by association, especially if they become an approved supplier to one or more prestigious companies.

Categorising your Suppliers

The fundamental question, of exactly what we are approving, must be addressed. The criteria for potential suppliers were identified in the last article dealing with Supplier Assessment. They dealt with the level of commitment and capability of a supplier to become a valued resource to your company. It is essential that only those who can satisfy these requirements be considered as approved suppliers.

Suppliers who meet these demands, and with whom you would want to build a long-term buyer/supplier alliance, can be considered fully approved. If you want to use a classification or rating system they would be in the ‘A’ group. The particular system you use will depend on how many key suppliers, those vital to your core business, you will need. The selection of these suppliers will depend on your supplier portfolio matrix, which was dealt with in the first article ‘Make or Buy?’ Some suppliers will not be able to fulfil all your demands; these may be given restricted approval and therefore would fall into a ‘B’ or ‘C’ category for instance.

It is important to have different categories of approval and to ensure that the parameters for each of them are clearly defined and understood. Like all things in life, suppliers and businesses change, sometimes not for the better. If your suppliers’ performance over a year is linked to his approval rating, and if their rating is important to them, it should be a big incentive to give of their best.

And the winner is . . .

Another way to use the approval rating system is to link it with Supplier Performance Improvement programmes. These can often be used by the suppliers themselves to encourage in-house development and to encourage their workforce. To foster this approach, you may want to consider running a ‘Supplier of the Year’ competition; such awards offer a win/win outcome for the purchasing company and their suppliers.

Performance Improvement programmes can be a major contributory factor in moving forward a buyer/supplier relationship, and they can be initiated fairly simply. Having used the Quality, Cost, Logistics, Development and Management parameters discussed in the last article on Supplier Assessment, you will have a good idea of your suppliers’ abilities. Taking this approach a step further, you should ask your key suppliers to use the same benchmarks to audit your company. You and your supplier should discuss the results of these findings as openly as possible. It will be at this stage that any incompatibilities will emerge. The results, at the very least, should form a platform on which to go forward and together you will have a greater understanding of the market in which you both operate.

In order to manage this process there needs to be an agreed framework for improvement, monitored by both buyer and seller. The magnitude of improvements made during the year by each supplier can then form the basis of your ‘Supplier of the Year’ awards.

The next article in the series will address Supplier Performance Measures.

If you would like access to previous articles in this series:

• Make or Buy
• Supplier Preparation and Conditioning
• Supplier Assessment

Please email to request.