Supplier satisfaction drives optimal quality and performance down the supply chain, and influence customer satisfaction and business prosperity. Hence, knowing what to ask to measure it regularly is critical. Here are the 4 ways that help you get the best out of your supplier satisfaction surveys.

In my previous blog on why measuring Supplier Satisfaction is more critical than it looks, we established that it is imperative to assess not only employee satisfaction and customer delight but also the supplier satisfaction as it completes the 360-degree perspective that organizations are keen to develop to create an environment of continuous innovation and market leadership.

Obviously, it is not rocket science to understand that supplier or vendor satisfaction primarily helps drive business prosperity downstream and ensures optimal quality, performance and cost of products and services, in turn influencing customer satisfaction.

Now, the next step is to know what and how to ask your vendors to get the most out of your supplier satisfaction programs.

What Should You Ask

Since you should be concerned about how motivated your vendors feel, the supplier satisfaction survey should primarily assess the relationship with your suppliers and provide true insights into business challenges that suppliers face while engaging with you. This helps identify and enumerate key areas of conflict and opportunities to introduce relevant process improvements.

Here are the 4 ways that can help you derive the best value out of your supplier satisfaction survey programs:

1.      Start Small. Be Selective

It applies to both the cases of organizations who haven’t yet put in a formal process to measure vendor satisfaction and those who initiated but didn’t follow through as the benefits of such efforts weren’t as visible as desired. In either case, initiate qualitative interviews and in-depth assessments with the select suppliers, instead of including all. We would suggest following the 80-20 rule and conduct the survey among the 20% of your vendors that effectively provide 80% of your supplies.

2.      Add Subjectivity

The questions need to be drafted to measure how successful an organization has been in meeting its suppliers' expectations across a wide spectrum of parameters, such as planning, demand forecasting, scheduling, inventory and order processing, contract management, communication, and collaboration, etc. Fundamentally, a supplier can be asked if its customer has been easy to engage with, if the customer has kept its promises, does the customer behaves like a true partner, does the customer challenge the status quo to help drive process and product innovation, and more.

3.      Scale Up with The Ultimate Question

Quantitative surveys work best with the assessments running at a smaller scale. Going forward if you upscale your supplier satisfaction program across the wider spectrum of your vendors, we'd recommend you to implement a structured process to capture supplier feedback based on the Net Promoter Score® (NPS) framework that belongs to Bain & Company, Satmetrix Systems, and Fred Reichheld. The NPS framework is a customer loyalty metric that correlates the feedback with revenue growth, and basically, asks the fundamental question of whether a customer would recommend the service or solution provider to an acquaintance. Obviously, it can be adapted and tweaked to understand the feedback upstream the supply chain. You may ask your key suppliers a few questions that help calculate the NPS score. For instance, how likely are they to recommend you as a customer to their supplier community, what's the most important reason for this score, and what changes would they recommend for you to adopt to get a higher score?

4.      Go Deep. Cover the Hierarchy

Naturally, such surveys need to be driven across the hierarchy of supplier’s staff, anonymously by external agencies to maintain neutrality and reduce the scope of conflicting interests. Responses to such questions, if captured and analyzed properly, may lead businesses to understand the performance of key drivers of vendor satisfaction, such as profitability, growth avenue, process transparency, business continuity, fairness, clarity in communication, and sense of ownership.

Interestingly, such effective supplier satisfaction measurement programs aren't prohibitively costly for organizations. While the amount of time, effort, and money that need to be invested in creating such an ongoing program depends largely on the size of the organization and the number of its suppliers, our experience tells us that once initiated, the program can be configured for about $50,000 to $100,000 per annum.

I strongly believe that businesses should regularly measure the pulse of their vendors and keep track of several parameters that go beyond just the price and payment aspects. Clearly, by instituting periodic supplier satisfaction surveys, businesses will not only instill trust but also express care and commitment to their suppliers and drive mutual improvements. 

There’s no room for argument with the statement that supply chain is the backbone of organizations, especially that of the manufacturing sector. And every CPO or relevant business stakeholder would strongly agree that suppliers are the backbone of the supply chain. However, here lies the irony.

We are well aware that customer satisfaction is considered to be at the root of business prosperity that organizations enjoy. Obviously, businesses invest a considerable amount of time, effort, and money to capture, understand and analyze how happy and satisfied are their customers. So is the case with the state of employee satisfaction as well. Organizations, rightly so, are investing their resources to keep a tab on the employee satisfaction as the old adage goes: happy employees mean happier customers. Somehow, supplier satisfaction, on the other, seems to usually get taken for granted and relegated to pricing and payment terms. This is rather unfortunate because employees from within and suppliers from outside the organization complete the ecosystem that, along with the company’s processes, strategies and continuous innovation, fuels the engine that keeps the customer ultimately happy.

It is not rocket science to understand that supplier or vendor satisfaction primarily drives business prosperity downstream and ensures optimal quality, performance and cost of products and services, in turn influencing customer satisfaction.

Why Should You Ask

The efficacy, efficiency, and capabilities of an organization's supply chain management systems, processes and policies heavily influence the supplier performance. It, in turn, forms the root cause of vendor satisfaction or its lack thereof.

In their article titled ‘Supplier Satisfaction: Conceptual Basics and Explorative Findings’ published in the Journal of Purchasing and Supply Management, Michael Essig and Markus Amann define supplier satisfaction as “a supplier’s feeling of fairness with regard to buyer’s incentives and supplier’s contributions within an industrial buyer–seller relationship as relates to the supplier’s need fulfilment, such as the possibility of increased earnings or the realization of cross-selling”.

Simply put, supplier satisfaction is all about implementing and running the supply chain smoothly, allowing the supplier to be cohesively involved in driving product or service innovation with complete visibility across product roadmaps and forecasting, and creating a conducive environment for collaboration, trust, and mutual improvements. In a single sentence, supplier satisfaction stems from a trustworthy partnership where both the parties contribute to mutual benefit and growth and is not a transactional relationship which is all about buying and selling.

According to Sherry Gordon’s book on Supplier Evaluation And Performance Excellence, satisfied vendors help organizations drive and achieve better customer satisfaction and positively influence the bottom line. Gordon observes three critical components that impact vendor satisfaction: the existence of collaborative and cooperative environment, commitment to mutual satisfaction, and open communication channels to share constructive feedback. 

Understandably so, an unsatisfied vendor may lose focus and be a tad less invested in enabling production quality, which may negatively influence the sales volumes and overall profitability. Businesses can hardly respond proactively to such a scenario because introducing significant changes in supply chain mid-production is akin to changing engines mid-flight. There will be unfavorable consequences in both shorter and longer run.

While the whole exercise to survey and analyze supplier satisfaction needs to be driven with established neutrality, organizations need to treat the inputs with a greater sense of discipline to acknowledge and assess the outcome, and take necessary action. However, the insights from such surveys depend on the quality, scope, and granularity of questions asked. The starting point of the survey should be the very definition of supplier satisfaction, which stems from the fundamental question that from among companies offering business with similar volumes, price and payment terms, why should a vendor choose to work with you?

In my next blog on Supplier Satisfaction, read more on the kinds of questions that you may wish to ask your vendors to assess their satisfaction, and my recommendations on how you can derive the best value out of your supplier satisfaction survey programs.

Following a protectionist policy alone will not help the US in the long run as the global shifts in manufacturing will always follow both demand dynamics and cost advantages. Intense lobbying is expected in early 2017 between the Corporate America and the Trump administration, and a compromise solution is the one that is most likely to emerge.

The U.S. has seen its share of manufacturing consistently on the slide — from almost 25 percent in 1970 to less than 12 percent at present. Growing trade deficits with China and Mexico and impending recovery from the recession since 2008 have resulted in the U.S. losing about 6 million manufacturing jobs by now.

The question largely asked is whether such loss of U.S. manufacturing jobs is due to several U.S. policies over the last two decades; namely, high corporate tax rates and incentives support for investments in manufacturing technologies or capacities? Perhaps not.  Evidently, even if the U.S. was a closed economy, the drop was inevitable as the share of services sector in the global GDP, vis-à-vis that of agriculture and manufacturing, grew strongly.

Despite politics’ huge influence on economic policies, the basic objective of making profits is the most fundamental tenet of the any country’s economy. With the increase in per capita incomes and wages in developed economies, manufacturing certain products at home becomes unviable. For example, export dress shirts are procured from the Asian economies at $4 on FOB basis. It is practically impossible for the U.S. companies to match the price points while making such shirts at home. Stringent environmental regulations further shifted capacities from the West to the East in relevant industries. Thus, in last two decades, the U.S. manufacturers have significantly increased their global footprint across high-growth emerging markets. To drive up efficiencies and profits in competitively-intensive markets, the U.S. manufacturers have developed the necessary skill and network to successfully leverage global sourcing opportunities.

Moreover, not only the U.S. but almost all of the developed economies are witnessing the manufacturing’s share drop at their home markets as the world economy has been shifting from the ‘machine-age’ to the ‘digital age’. The influence of automation, robotics, and connected factories on manufacturing is pretty evident and is slated to grow phenomenally over the next two decades. Popularly known as ‘Industry 4.0’, such advancements will reduce labor requirements and can be identified as opportunities for the U.S. manufacturers to invest heavily in such technologies that will help reduce the proportion of labor costs to the overall manufacturing costs, an area where the emerging economies have a huge advantage.

Therefore, following a protectionist policy alone will not help the U.S. in the long run as the global shifts in manufacturing will always follow both demand dynamics and cost advantages. Initially, in 2017 intense lobbying is expected between Corporate America and the new Government, and a compromise solution is the one that is most likely to emerge. The U.S. manufacturers are heavily invested in Mexico and other emerging economies, and bringing back such jobs will neither be easy nor economical. To grow, the U.S. manufacturing sector needs a thorough strategy focusing on high-tech sectors and investments in automation. And, evidently, manufacturing of commoditized products will neither be a prudent strategy nor economical.

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This post first appeared on mbtmag.com.

Identifying right spend categories to source from Minority & Women’s Business Enterprise (MBWE) suppliers is a crucial element of a successful supplier diversity program. However, there are three basic mistakes we have seen organizations mostly make while figuring out what to purchase from whom. Make a note.

Most conversations among procurement professionals and supplier diversity experts on how to conduct a successful supplier diversity program are usually rife with two set of questions – whom should we benchmark against, and how to source such suppliers. In fact, we had also discussed in our earlier blog how to benchmark correctly to set the organizational goals and chart out the diversity plan.

While these are indeed critical questions to ask, identifying and prioritizing right spend categories – aligned with supplier availability and the business objectives – is a crucial link between the two stages. Unfortunately, it is also most often a hastened and neglected stage, which generally leads to a widespread problem of “we are unable to find the right diverse suppliers”, and misalignment with the organization’s conventional procurement tactics.

In our experience working closely with procurement professionals, we have noticed three fundamental mistakes that plague any supplier diversity program, especially while prioritizing spend categories.

Note and avoid.

Mistake #1
Focusing just on compliance and peer recognition at the cost of real benefits.

We have seen several instances where an enterprise is quite focused on running its supplier diversity program just to meet the government regulations and perhaps, gain peer and industry recognition. They usually take the easier route to select low-priority categories, as their larger spends in broader categories are anyway conventionally conducted by their procurement teams. The required attention to detail is missing, and it’s just the matter of getting certain numbers met and boxes ticked in their performance measurement metrics. Obviously, such organizations rarely see the real benefits of supplier diversity programs.

Mistake #2
Using simpler performance metrics to measure progress and not aligning objectives at operational level.

The ineffective route of selecting low-priority spend categories is further marred by loosely calculating broader and traditional metrics in defining organizational spend categories. It is not uncommon to find organizations excluding large spend categories based on pre-conceived, ill-informed and under-researched notions of such categories not being realistic opportunities to tap supplier diversity. These exclusions are generally not standardized and are usually driven by guesstimates, unfortunately. 

Moreover, we have noticed clear misalignment between the strategic objectives of supplier diversity programs and operational tactics. As per Hackett Group’s study, while 90 percent of the study’s participating companies relied on metrics of ‘Percent Spend with Diverse Suppliers’ or ‘Recognition by Industry’, just about a tenth actually assessed the impact of their supplier diversity programs on their revenue or market share. Quite a lot of such companies, thus, continue to grapple with the basic decision of how many diverse suppliers they actually need to work with to gain effective results. Naturally, by tracking the incorrect metrics and not driving the on-ground efforts to maximize the impact of such programs, these enterprises fail to align program objectives with organizational action and business results.

Mistake #3
Not developing a comprehensive understanding of specific category profiles.

When the required attention to detail is missing, and incorrect assumptions and metrics drive the agenda, most of the organizations fail to really understand fundamental details on what is bought, from whom it’s purchased, what are its specifications, its cost dynamics, how the spend is to be managed internally, and which MWBE suppliers can be roped in. For effective strategic procurement, we reckon enterprises also need to analyze prevailing market trends and economics that significantly impact negotiations and purchases. Not studying category profiles and conducting relevant opportunity analyses can reduce an organization’s ability to leverage its supplier diversity program, and perhaps be counterproductive to its overall procurement objectives.

Our procurement research analyst teams have worked with organizations across industries to help overcome such key diversity program challenges — identifying the correct categories to focus on, finding diverse suppliers, verifying & understanding diverse suppliers, as well as developing and tracking performance metrics for supplier diversity programs.

In case you are interested to know how we can enable and support your supplier diversity programs — and help you maximize business benefits — do let us know. We’d be glad to get on a call for a quick chat. Feel free to drop us a line or check out how we can help.

An inability to determine the right parameters for success and not knowing the best performance benchmarks can easily derail even the most robust supplier diversity program. Benchmarking is your first step. Know what's the best way forward.

Supplier diversity isn’t an unheard phenomenon. Every major organization worth its salt is dabbling in this initiative in one form or other. However, it definitely isn’t proving to be an easy affair.

Procurement professionals are increasingly plagued by inherent questions – how to begin; how to select such diverse suppliers; how to measure success; and more essentially, whom should we benchmark against?

Undoubtedly, establishing effective benchmarking parameters and setting targets are the core components of the first big step toward building and managing a successful supplier diversity program.

Once benchmarks are determined, it is easier to get management buy-in, articulate supplier diversity goals, chart out action plans, identify potential pitfalls, challenge the status quo, and track success along the way.

Measure Up to Best-in-Class

To create effective supplier diversity initiatives and run such programs successfully, it is critical for procurement decision-makers to establish best-in-class benchmarks. Without the intelligence of how an industry is leveraging supplier diversity, what’s the typical spend, and how successful are such programs, organizations wouldn’t be able to gauge their own performance.

Or simply put, organizations may continue to fumble in the dark without discovering what best performance is and how it’s being achieved.

We are quite aware that procurement professionals do understand the need to continuously benchmark against best-in-class performances. Where they usually struggle, in our view, is to figure whom to benchmark against, and how to determine best practices.

We believe that finding who to benchmark against is actually an easier step. Several supplier diversity experts, including us, can help organizations identify such programs being run within their relevant sectors, and beyond. What is harder, is actually determining the metrics to benchmark against.

Generally, procurement professionals gravitate to target numbers for benchmarking. We, at Aranca, strongly recommend our clients to benchmark against processes and functions instead, that successfully deliver such numbers. Organizations should rather find out how the best-in-class supplier diversity programs are being run, what parameters are being tracked, and how such suppliers are being managed. All, with clear sensitivity to the diversity in geography, operating and procurement environments, that exist even within the same industry.

Procurement professionals can make their life easier by engaging experienced benchmarking partners, while gaining access to the National Minority Supplier Development Council (NMSDC) and the Women’s Business Enterprise National Council (WBENC) industry groups and peers to exchange perspectives and gain knowledge.

Benchmarking partners can help organizations gain actionable insights to improve significantly by assessing and benchmarking their own processes against best-in-class practices. With the right benchmarking and relevant industry information that maps to their specific purchasing requirements and geographic presence, supplier diversity program managers can continuously focus on highly relevant metrics while determining their baselines and measuring success.

Evidently, correct benchmarking not only helps organizations to kickstart their programs on the right note, but to stay on track and utilize diverse supplier opportunity to the maximum.

Hence, we strongly recommend you to pay close attention to benchmarking correctly before you embark on your supplier diversity journey. In fact, even if you have a live supplier diversity program, it is never late in identifying the right benchmarks, to course-correct your program initiatives.

Our procurement research analyst teams have worked with organizations across industries to help overcome such key diversity program challenges — identifying the correct categories to focus on, finding diverse suppliers, verifying & understanding diverse suppliers, as well as developing and tracking performance metrics for supplier diversity programs.

In case you are interested to know how we can enable and support your supplier diversity programs — and help you maximize business benefits — do let us know. We’d be glad to get on a call for a quick chat. Feel free to drop us a line or check out how we can help.