Driving Supplier Improvement and the Six Degrees of Supplier Intervention
Supplier intervention and development (SI&D) is a key component of Supplier Relationship Management (SRM) but can mean many different things. It could be a simple intervention, to having a supplier fix a problem related to the product or service they provide, to working collaboratively to develop capability across an entire process for mutual benefit.
Therefore, it’s important to adopt a flexible attitude to SI&D, as each approach needs to be matched to a specific supplier, what is being supplied and the prevailing environment and conditions. In other words, there’s no ‘one size fits all’ solution.
Having said that, interventions generally fall into one of two categories depending on the importance of the supplier and the required outcomes:
1. Supplier Improvement Interventions
These include corrective action, preventative action and continuous improvement, and focus on moving a supplier from a current position, perhaps based on previous performance, towards a new and improved position. This type of intervention, which is largely reactive, is most relevant to the middle tier of important suppliers and perhaps even some transactional suppliers.
2. Supplier Development Interventions
Relevant for strategic suppliers, supplier development interventions are typically proactive and focus on working with the supplier to move towards an agreed goal. This type of intervention is collaborative with the aim of developing new capabilities to enable the supplier to work towards a new goal that would otherwise not be feasible.
There are many varied reasons why a SI&D intervention may be necessary and appropriate, including the following:
- Fixing a supplier related problem
- Reducing or eliminating a known risk
- Reducing cost
- Improving process effectiveness or efficiency
- Improving performance
- Developing capability
- Developing a new product or service
- Creating a new differentiator
- Increasing market penetration
- Entering new markets
- Releasing new value for mutual benefit
The Six Degrees of Supplier Intervention
Depending on the importance of the supplier, our goals and what the KPIs tell us, there are six possible degrees of action and intervention with suppliers that we can choose. Evenly split between reactive and proactive, these six choices can be summarized as follows:
- If there is an issue with a supplier or it is underperforming, yet the resulting impact is tolerable or not worth addressing as you can easily switch supplier, then you have the option to don't improve, just accept the situation.
- The second choice is to take corrective action if the problem is isolated or there is no chance of it being repeated. While this will fix a single problem, it doesn’t allow us to take away any learnings from the situation.
- Corrective and preventative action is where the problem is fixed, or performance corrected and then actions taken to prevent recurrence. While the preventative element may not always be possible, deliberately reviewing and considering the possibility helps us to realize learnings where they exist. Companies which have implemented ISO9001 will be very familiar with this type of action as it forms an integral part of the standard.
- Continuous improvement (CI) is where there is an ongoing effort to improve the supplier performance, processes or capability which is over and above taking corrective and preventative action. Improvements here may be incremental over time or could equally result in a breakthrough or game-changing improvement.
- Distinct from the above option is advancement towards our goals. While CI is about improving from where we are, advancement towards our goals focuses on interventions and supporting KPIs to help us achieve this.
- The final degree of intervention is advancement towards shared goals. This is where we have mutually agreed on goals with the supplier and have a jointly designed, owned and executed a program of intervention to achieve these which are supported by leading KPIs.
This article is adapted from 2nd edition Supplier Relationship Management: Unlocking the Hidden Value in Your Supply Base (9780749480134) by Jonathan O'Brien © 2018 and reproduced by permission of Kogan Page Ltd.