SIG University Certified Supplier Management Professional (CSMP) program graduate Brett Hillsberg shares an example of values exchange and balancing with suppliers from his past experience.
I want to focus on how partnerships can form and evolve using strategies that involve transparency in governance and incentives to innovate and create more value for all partners; if an organization wants its core values to be extended into the supplier relationship, then a governance program is vital. That is common knowledge, but implementing the governance program without the supplier walking away and finding other businesses while also maintaining the operational and organizational targets is much more of a challenge.
I propose that each sourcing lead think critically about which values need to be extended to each supplier with each budding sourcing relationship: “what are the most meaningful governance and metrics priorities that are relevant to this supplier relationship?” should be the standard question that every Sourcing Lead ponders before handing off the first draft of the contract to the supplier for their review.
Based on this fitted governance and metrics for the organization’s overarching business strategy, the Sourcing Lead should be proactive by overstating the importance of the governance clauses to the supplier before negotiations begin to make sure the supplier understands their significance and priority within the talks to make sure the supplier doesn’t waste precious time negotiating non-negotiable clauses. Suppose the supplier cannot abide by the governance. In that case, the Sourcing organization may need to consider the supplier’s fit within the organization’s culture/values and walk away for a more suitable partner if necessary.
While governance can sometimes be a bitter pill to swallow for a relatively independent-minded supplier that has no interest in matching a customer’s values, only serving on a transactional basis, a technique to bring from a transactional mindset to a preferred supplier or even a partnership mindset to foster creativity and innovation is providing incentives for the supplier to abide by the governance. As an example from my past work experience, I was the Sourcing Lead in a company that did business with several suppliers in northern Italy.
Still, each supplier wanted to retain their preferred transportation forwarder. One of my first acts as Sourcing Lead at that organization was implementing a governance policy where the buying side would arrange the transportation bookings for all freight in northern Italy would be picked up at once by the same forwarder and merged into the same ocean freight container. This strategy saved the company $200,000 per year in transportation costs in contrast to the previous process of de-centralizing transportation. The suppliers were initially still determining the new transportation governance methods.
Eventually, they came to appreciate the idea after the organization rolled out new incentives to reward suppliers with larger and more regular/predictable orders. As it happened, the company’s rankings became much more predictable, allowing the supplier to place their demands on the second-tier suppliers further out in advance. A regular once-per-month ocean freight shipment from Italy to the United States became routine for all parties within the partnership.
This lowered costs for all, especially expediting charges in shipping and labor, as well as monitoring costs because “emergency shipments” became less and less frequent to the suppliers. In this example, I outlined how healthy governance by fixing an inefficiency led to cost savings for all parties involved and a smoother day-to-day operational relationship. The answer to the question of “what is the most meaningful governance to this relationship” was transportation management. Each partnership should be defined by its purpose to the organization and the supplier.
It’s up to the Sourcing Lead and their internal customers to determine what kind of efficiencies and strategic value a good governance program can provide. If a supplier is resistant, the incentives can smooth out the process – ensuring they also achieve their value from the mutually beneficial relationship.
The Certified Supplier Management Professional program is a five-week course delivered through SIG University’s unique education platform. Visit our website to learn more about the discipline of governance and enroll for the upcoming semester.
Brett Hillsberg, Sourcing lead & Category Manager, ASML
I have worked in Procurement for eight years in various industries, including LED Lighting, retail, industrial supply, and now in the semiconductor industry for ASML. I currently serve ASML as a category manager for our east coast spending for capital equipment and our national spend in equipment maintenance & calibrations and small tooling. I have experience in the supply chain's Sourcing and Transportation functions and worked with suppliers worldwide in Europe, East Asia, and Latin America. Currently, I serve as a Sourcing Lead/Category Manager for ASML. Brett Hillsberg shares an example of values exchange and balancing with suppliers from his past experience.
SIG University Certified Supplier Management Professional (CSMP) program graduate Brett Hillsberg shares an example of values exchange and balancing with suppliers from his past experience.
The Certified Supplier Management Professional program is a five-week course delivered through SIG University’s unique education platform. Visit our website to learn more about the discipline of governance and enroll for the upcoming semester.
I have worked in Procurement for eight years in various industries, including LED Lighting, retail, industrial supply, and now in the semiconductor industry for ASML. I currently serve ASML as a category manager for our east coast spending for capital equipment and our national spend in equipment maintenance & calibrations and small tooling. I have experience in the supply chain's Sourcing and Transportation functions and worked with suppliers worldwide in Europe, East Asia, and Latin America. Currently, I serve as a Sourcing Lead/Category Manager for ASML. Brett Hillsberg shares an example of values exchange and balancing with suppliers from his past experience.