Current importance

Current importance is all the factors that make a supplier important to us today. It includes spend, contractual commitments, importance due to operating location or geographical coverage, the degree to which the supplier knows our business or has know-how about our processes (and therefore has an advantage) and any established relationships that drive obligation or preference. Current importance is mostly concerned with the degree to which a supplier can help us, but there is also scope for the supplier to hurt us, for example if they chose to use any unique knowledge of our business to their advantage and our disadvantage (and so this becomes a risk).

Part of this criterion includes how much we spend relative to our overall spend. Spend is often used as a primary segmentation criterion on its own. Whilst this is a good gauge, as it follows that if the spend is high then the exposure of the business to that supplier is significant too. Using spend alone can skew the results. One company I worked with determined that Staples, the office supplies company, was of strategic importance due to their very high spend in this area (due to the nature of the company's business). Other than a high spend there was no other basis to have a special relationship with Staples and there was nothing being sourced that could not be sourced elsewhere immediately if needed. Spend has its place in segmentation and needs to be considered but as part of a broader more balanced process of segmentation and so it is included within the broader heading of Current importance. A supplier providing temporary labour on demand may have a high spend but might otherwise not be important as there are other companies providing this service readily available. However, if this supplier understands our business and is able to provide specialist capabilities where and when needed then the supplier is more important.

Contractual commitments can mean we are locked into using a particular supplier and therefore we need to manage that supplier in some way. We therefore need to understand what these are and at what point in time a contract will end or expire and therefore the timeframe within which such intervention is required.

Suppliers can amass great knowledge or know-how in the course of an engagement and sometimes this can give them power and therefore make them important. One of the main reasons why outsourcing key functions of a business to a third party can fail is when a company outsources a problem for a supplier to fix without good exit provision. Unique supplier know-how or process knowledge can therefore make a supplier important, however this importance might only be so long as this situation remains. If we understand the issue we can begin to develop actions that alleviate the problem and reclaim knowledge and therefore the supplier will become less important and require less intervention. Once again the degree of intervention becomes something that shifts over time.

The importance of current relationships with a supplier should not be underestimated. If established relationships between individuals work well day-to-day then this is important but crucially making any change to these relationships would need careful management.

Suppliers are scored for this criterion based upon an assessment of all the factors that make a supplier important today, the more factors and the greater the importance the higher the score.

Future importance

Future importance is the degree to which a supplier can help us in the future and is the criterion concerned with finding the future heroes. A supplier that is unimportant today could be of great importance in the future and warrant time and energy to develop the right relationship. Similarly suppliers who are important today may not be so tomorrow.

Our future direction and anticipated future spend are key factors here, but so is what the supplier is doing. Future importance is mainly about asking which suppliers are working on innovations, or heading in a direction, that could help us in future? If we know this then we can work out how to get close to these suppliers to capitalize on the mutual opportunity. However, knowing this, or indeed where to look, is not that easy.

If we could predict future innovations then they wouldn't be innovations. Suppliers may share some of their future plans and what they are working on, but there will usually be a deeper secret layer that is not readily shared as the supplier will be protecting their competitive advantage. If we know the supplier already then we may have a view here, otherwise future opportunity can require some detective work to find it. Once again this happens by getting close to suppliers and building trust with them. This takes time, and its not just our current suppliers but potential new suppliers also and here we need market research, understanding and data gathering around supplier capabilities. Here the RFI tool can help to solicit information those suppliers identified as having potential capability.

Future opportunity should be determined based upon the fit with what we need for the future. A supplier may be working on the next generation of rocket motors, but if we are in the business of meat processing then the innovation is not going to help us. Therefore we start with our VIPER macro level relationship requirements and ask three questions:

• Which suppliers posses process, technology, know-how, experience, geographic location, capability to help here?

• Which suppliers have a track record of innovating or being the first to do something new?

• Which suppliers could transition into providing what we need (eg posses similar capabilities or operating locations)?

One final component about future importance is supplier willingness. It is easy to assume that suppliers are always willing to participate. This may be the case but not always and energy to develop a collaborative relationship could easily be wasted if the supplier has other ideas. We will return to this point later.

A supplier scores high for future importance if they hold the potential to fulfil a future need we have identified.

 
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