How To Get More Value From Your Suppliers With A Preferred Supplier Program
By Hugo Britt | October 20, 2020
After you log in to your UberEATS account and search for “pizza,” you have the option to sort the results by consumer ratings. It’s probably safe to assume that former customers have weighed in on the taste, size, preparation time, pepperoni-pieces-to-pizza-slice-ratio and cost when scoring the restaurant. This means that within seconds, you’ve effectively determined where to buy the best pepperoni pizza in your area.
When you look into a weekend getaway on Airbnb, you can rank potential hosts by their rating. But there’s also an option to filter your search exclusively to “Superhosts” – those who have been awarded a badge of honor by Airbnb for being the top-rated and most-experienced hosts.
Features like these make the process of parting with your hard-earned cash a little less stressful. There’s much less to consider and a whole lot of time saved when someone else has carried out the groundwork to verify the organization – or person – you are considering buying from. A good rating indicates a legitimate, reliable business that is likely to provide a high-quality service at a fair price.
This, in essence, is the purpose of a preferred supplier program.
Do I need a preferred supplier program?
A preferred supplier program means establishing a list of your organization’s top suppliers with whom your buyers are encouraged to prioritize spending.
You know your organization could benefit from a preferred supplier program if:
- Negotiations and contracting happen in silos across the organization.
- Buyers purchase products and services from the same supplier at different prices.
- Sourcing, contracting and on-boarding are not streamlined processes.
- Employees are not incentivized or encouraged to use existing suppliers.
How will a preferred supplier program benefit my organization?
Following a thorough assessment process, a supplier can be awarded preferred supplier status. This differentiates them from the rest of the organization’s supply base and there are 6 key benefits of doing so for both parties.
The purchasing process with preferred suppliers is much more efficient. Buyers can quickly and easily onboard a supplier from their organization’s curated list with pre-negotiated rates, which accelerates the contracting process.
Improved spend management
Consolidating the supply base to a list of preferred suppliers enables an organization to leverage economies of scale, reducing costs and improving payment terms.
Stronger supplier relationships
As with supplier segmentation, a preferred supplier program helps procurement decide where to allocate supplier relationship management (SRM) activities. It’s an opportunity to nurture long-lasting and meaningful relationships with the suppliers who bring the most value to your organization. As a result of good buyer-supplier relations, communication and the negotiation process should come more naturally.
Centrally negotiated prices and contractual terms, alongside better supplier relationships, mean less risk for your organization. Preferred supplier programs drive transparency, visibility, and trust. When disruption occurs, you can rely on your preferred suppliers for loyalty and, thanks to pre-determined agreements, it will be easier to scale up or scale down production as necessary.
More opportunities for diverse suppliers and SMEs
Many organizations make it a priority to include diverse suppliers and SMEs in their preferred supplier programs. Not only does this provide opportunities for these suppliers, but it will likely drive innovation within your organization.
Improved service and product quality
Suppliers who are part of a preferred supplier program have a more intimate relationship with the organization and therefore a better understanding of your business goals. This means they are better placed to meet your expectations and pivot to accommodate changing requirements.
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What criteria should I use for selecting preferred suppliers?
The criteria you use to select preferred suppliers (and the number of preferred suppliers you need) depends on the products and services you are sourcing, the size of your organization, and your business priorities. The ultimate aim of a preferred supplier program is to help your organization maintain its competitive advantage.
Many procurement teams leverage Ray Carter’s 10-C supplier evaluation model to select preferred suppliers. These are as follows:
- Competency – is your supplier equipped with the resources, technology, and talent to meet your needs and expectations?
- Capacity – does your supplier have the flexibility to scale production up and down as necessary?
- Consistency – can your supplier consistently deliver on time, and to a high standard?
- Control of process – has your supplier streamlined their processes? For example, are they in control of inventory and budgeting?
- Cost – does your supplier offer competitive prices? Are there any hidden costs?
- Commitment to quality – has your supplier implemented proper quality control standards? What is their track record for quality?
- Cash – is your supplier financially stable? Do you have visibility of their financial history?
- CSR – has your supplier committed to complying with environmental regulations and sustainability initiatives?
- Culture – do you have a good working relationship with your supplier?
- Communication – does your supplier have a good track record with regular and honest communication?
Establishing your preferred supplier program
Once you’ve decided to elevate a vendor to preferred supplier status, you’ll need to approach them and make your case. How will the supplier benefit from being part of your preferred supplier program (bigger order volume, streamlined contracting process, etc.)?
It’s important to negotiate an agreement that works for both parties and give your supplier the opportunity to make requests and suggest terms.
The process doesn’t end once you’ve on-boarded a supplier to your preferred supplier list. Perhaps the biggest challenge is driving employee compliance.
To achieve this, preferred suppliers should be “surfaced”, which means that when an employee logs into your organization’s buying solution, these suppliers will be the first recommendation they see. Employees must be made aware that buying from the list of preferred suppliers is the easiest and fastest way to obtain the products and services they need.
Drive continuous improvement by monitoring the success of your preferred supplier program, evaluating buyer behavior and prioritizing supplier innovation.
Don’t have time to establish your own preferred supplier program? At Una, negotiated contracts with top suppliers are already in place. All you have to do is pick your favorites and start saving. Contact us to learn more.