Mature procurement organisations are turning to supplier engagement to help them deliver on key efficiency, risk, ESG, and growth goals. Here we look at what it is, what it’s used for, and some key tactics for better supplier engagement.
Historically neglected compared to investors or customers, suppliers are a key stakeholder group for enterprise businesses looking to deliver effectively on their strategic goals against a turbulent business landscape and supply market.
Engaging effectively with supplier stakeholders helps organisations to build stronger, more transparent, and more valuable relationships with their extended ecosystem. This, in turn, brings advantages to the organisations who can manage this engagement effectively – from the usual cost, quality, and compliance improvements required of procurement through to delivering on strategic goals around decarbonisation and sustainability, achieving growth and transformation through innovation, or managing external risks to the business.
In this guide to Supplier Engagement tactics, we cover these use cases in more detail, take a brief look at segmenting supplier engagement methods by supplier maturity, and suggest some key supplier engagement tactics for these different maturity levels that your organisation can employ to effectively engage supplier stakeholders.
Supplier engagement refers to a series of activities and tactics designed to strengthen and deepen relationships with incumbent suppliers.
Though best-in-class supplier engagement usually refers to the process of Supplier Collaboration and Innovation, this journey can start with much “lighter touch” engagements designed to drive transparency, alignment, and trust between buyer and supplier. In addition to deep collaboration or joint innovation projects, supplier engagement encompasses interactions such as data collection, supplier education, knowledge sharing, quarterly business reviews, “supplier days”, awards schemes, and more.
It attempts to put both supplier organisation representatives and customer organisation representatives on the “same team”, moving them towards a place where the relationship is managed mutually.
The supplier engagement tactics you will adopt will vary across your supplier cohort – something we’ll touch on in more detail later on. But remember that regardless of the tactics you pursue, supplier engagement is a two-way street; educating, upskilling, & incentivising your own team is as important as doing so for suppliers.
Learn more about the importance of two-way engagement in our blog on The true cost of one-way SRM.
A key output of successful supplier engagement is that the customer organisation is able to develop ‘customer of choice’ status with key strategic suppliers – a relationship dynamic where both parties access benefits from the other due to increased trust, transparency, and reciprocity over time.
This dynamic allows organisations to more effectively deliver on their strategic goals through better supplier engagement, supporting numerous objectives including:
Given that supply chain emissions (scope 3) are on average 11.4 times higher than operational emissions (scopes 1 and 2), engaging effectively with supply chain stakeholders is imperative for any organisation looking to meaningfully decarbonise.
CDP, the world’s largest environmental disclosure platform, specifically asks respondents to outline their engagement strategy with value chain stakeholders in Section 12 of their climate change questionnaire. This accounts for a 35% weighting in their CDP Supplier Engagement Rating (SER), a letter score derived from specific answers to the CDP Climate Change Questionnaire which was introduced to indicate how effectively companies are engaging their suppliers on climate change.
For CDP, this process falls into three categories which range from lightest touch to more involved engagement:
Though the focus remains on climate and emissions as we struggle to keep anthropogenic global warming at or below 1.5°C, supplier engagement is also effective for other goals under the ESG umbrella from environmental issues such as water usage reduction or protection against biodiversity loss through to social and governance issues around modern slavery, child labour, gender and race parity, and supporting minority communities.
Learn more about how supplier engagement supports ESG goals with our Sustainable Procurement 2030 guide
In order to bring new products and services to market that effectively meet changing consumer demands, enterprise organisations must invest in innovation.
Though home-grown innovation has brought myriad successes, it comes with some risks, including a short-sighted understanding of wider market capabilities, high R&D costs, and long development and go to market periods which can leave organisations behind the curve.
To circumvent these risks, mature procurement organisations are turning to the supply chain. Supplier stakeholders are subject matter experts with extensive knowledge not just of one customer’s business, but also of their competitors, and of whole verticals. Localised suppliers come with an intimate understanding of local markets, and in an age where many large organisations have driven significant “efficiencies” through minimising their spend on FTEs, the supply base provides a large pool of talented minds to draw from.
Further benefits of engaging suppliers on innovation initiatives include faster speed to market – supplier-sourced innovation is typically commercialised 40% faster than internal ideas due to being pre-validated by the supplier – and reduces total lifecycle costs by reducing the typically high cost incurred during the design phase.
In today’s hyper-competitive and rapidly changing business landscape, organisations must adapt to survive and thrive. Whether it’s evolving outdated processes that hamper agility, transforming unsustainable categories that are difficult to decarbonise, or revamping an entire business model, many large enterprises are looking to transform the way they work and do business.
Take, for example, the tobacco industry, which is now having to pivot to sourcing electronics and battery technology as traditional tobacco sales dwindle in favour of widespread uptake of vaping and e-cigarettes. Telco, too, has experienced an expansion from traditional communications infrastructure towards cloud-based technology and digital services models. Other industries are facing similar pressures to change the very core of their offering.
Along with supporting new product introduction through innovation, suppliers’ wealth of experience and intimate knowledge of specific verticals makes them a powerful resource for enabling this transformation for the organisations who can engage them effectively.
Recent crises from the pandemic to inflation or Russia’s invasion of Ukraine have imperilled supply chains and caused widespread disruption to both businesses and consumers as many organisations have struggled to secure the products required for their operations.
Not only does the “customer of choice” relationship we outlined at the beginning of this section bring benefits for sustainability, new product introduction, and transformation, this stronger relationship between buyer and supplier allows both to more effectively pre-empt risks and problem-solve when they arise.
Engaging suppliers effectively can secure priority access to resources in times of scarcity, in addition to providing the visibility required for early identification of supply chain risk, and the easy access to supplier expertise when actioning continuity plans.
To support you in reaping the benefits of better supplier engagement, we’ve put together our top ten tactics below.
You are unlikely to use every single one of them, and they don’t have to be accomplished in a particular order.
You are likely to prioritise different suppliers for different types of engagement, based on what you’re trying to achieve and how strategically important they are to your business. Other appraisal criteria might include factors such as the state of your existing relationship, spend, emissions intensity, risk, or ability to influence.
Strategy sharing is the step which forms the fundamental basis for all other supplier engagement initiatives, from data collection through to collaboration and innovation.
One of the lightest touch options, it serves to drive transparency and alignment between your organisation and its suppliers by clearly stating your strategic aims as a business, the metrics you need to meet in order to prove success, and how your procurement strategy and tactics fit into that broader goal.
Strategy sharing should include short, medium, and longer term plans, and include a sense of the pains your business is responding to. This begins to give suppliers an idea of how they can strengthen their relationship with you based on your organisation’s priorities, and better meet and understand your needs.
Importantly, this should also be reciprocal, with suppliers invited to share their strategic plans for their own business. This step provides structure for your ongoing partnership, and allows you to identify joint opportunities for mutual growth and development early on.
A key step in engaging with the current state of play amongst your supplier cohort is data collection. This allows you to identify areas for improvement or opportunities for growth, in addition to laying the groundwork to prove the value of other engagement tactics.
The data you collect will vary depending on your goals, but should include indicators of performance, risk, & opportunity across areas such as spend, quality, sustainability, resilience, and innovation.
How you collect these will vary – when it comes to spend, quality, and operational performance it’s likely to be a case of enriching the data you already have on a given supplier.
For cases such as sustainability, by contrast, the process can be more involved. Turning to disclosure platforms is a great way to ease this friction – asking them to disclose to CDP, for example, provides them with information they can use with other customers, too.
Setting targets with suppliers is a key tactic towards achieving your goals. Importantly for high quality supplier engagement, targets should be mutually discussed and negotiated. Over time they can be incrementally raised to ensure continuous improvement.
It’s also important to remember that some targets can undermine your relationship with suppliers if they do not yet have the capacity or knowledge within their business to understand or meet them. Begin with manageable, leading indicator targets.
Regardless of your use case, it is important for suppliers to feel reassured that they will receive support to achieve them.
Running purpose-built campaigns is a great way to engage suppliers and increase your ability to influence.
Lighter-touch tactics within this bracket may include distributing case studies or an internal “press release”, sending out email campaigns to internal and supplier stakeholders, or recording a webinar that covers the key points of what you are trying to achieve alongside suppliers.
The best bang for your buck, however, will come from supplier days – a procurement-centric event that brings supplier stakeholders alongside your own team. Spanning anywhere from an afternoon to a week, traditional supplier days are conference-style events which serve to relay key strategic updates, address ongoing industry trends and events, and/or provide workshops that foster collaboration and capability uplift.
These events provide considerable advantages over email communications by bringing stakeholders of varying seniority together for direct conversation, allowing for seamless communication and brainstorming. Supplier days thus set the tone for how your relationship will progress over time, in addition to demonstrating a commitment to transparency and collaboration.
Where and how frequently you host these events can be tailored to your individual business needs, though for large organisations with OpCos across the globe, virtual events provide the most flexibility and the biggest boost to attendance, in addition to saving carbon emissions and keeping costs lower.
Vizibl is a proud partner of Supplier Day, the experts in delivering unique virtual events and procurement team experiences that cement alignment with suppliers and partners.
Read more at www.supplierday.com
Joint business planning builds on the steps of strategy sharing and target setting to move your supplier relationship towards a mutually-beneficial, jointly-managed endeavour.
Your JBP with a given supplier should be constructed between senior stakeholders on both sides of the relationship. Just like a normal business plan, it should set out key features of the relationship, time-bound objectives & deliverables, and agreed upon measurement criteria, along with detailing the key stakeholders who are responsible for its ongoing success.
Our clients also find it helpful to add guiding principles and intended behaviours to their JBPs in order to aid all team members in following and bolstering the ethos of the relationship throughout their daily interactions with suppliers.
In many cases, team members from supplier organisations will lack the expertise required to engage with your procurement function on larger strategic goals your business is trying to achieve.
While target setting and supplier days can both help spur suppliers into self-education, many supplier organisations lack the resources to comprehensively educate their team in areas like sustainability and emissions, social responsibility, or supply chain risk.
Given that you are likely to be upskilling your own team in such topics, consider inviting suppliers to these training sessions and workshops. This will ensure that every member of your “team” – agnostic of organisation – is armed with the knowledge and context they need to properly engage with their objectives.
Running supplier awards schemes as a supplier engagement tactic allows you to keep suppliers motivated and engaged by boosting morale, showcasing best practice through supplier case studies, and rewarding excellent reciprocal engagement.
Supplier awards schemes can vary in their format, with supplier organisation or supplier team member awards both being applicable. Categories may be chosen around the key performance indicators selected for your relationship, with others awarded qualitatively based on survey feedback from other members of the team regarding individual high performers.
Though it can be difficult to manage with large organisations spread across OpCos and continents, consider hosting an annual awards “night” (whether in person or virtual will depend on your organisation) in order to provide a forum to celebrate your partnership together, even if it is done so on a regional basis.
Though somewhat of a blunter instrument than other tactics, financial incentives play a key role in engaging effectively with suppliers, and should be formally built into the commercial model of partnering with a supplier.
How these incentives are applied will depend on the goals of the supplier engagement – improving resilience will look different to sustainability, or new product introduction for example – but may include tactics such as:
The last item, joint investments, is one that we hear referenced regularly when speaking to large enterprise organisations. In a Vizibl webinar, Tetra Pak’s Global Innovation & Sustainability Director, Anke Hampel, gave the example of investments into “flaring” (where a chemical company burns off waste methane into water and CO2, as methane is considerably more harmful to the environment). As Hampel put it: “I would normally think a chemical company could do [these kinds of investments] on their own but, hey, this might be a business in the red. So then I should look at these opportunities and say, okay, it makes sense for me to invest here [in order to meet my own emissions reductions targets].”
Learn more about TetraPak’s supplier engagement initiatives with our on-demand webinar TetraPak: Aligning suppliers to sustainability goals.
Supplier collaboration is one of the more involved steps in engaging effectively with suppliers, but it also promises the most value. Supplier collaboration builds upon SRM principles in order to build highly aligned, highly engaged, “active” relationships.
Supplier collaboration involves running projects mutually with suppliers to support your goals – this may be a risk reduction project, emissions reduction in a given category, or a project to improve existing ways of working. The possibilities of what you could work alongside suppliers on are basically endless, but if you’ve engaged in joint business planning and strategy sharing with suppliers it should be clear where value is being left on the table and where both parties have the opportunity to drive tangible benefits.
For supplier collaboration to succeed, it is absolutely imperative that you have robust project management processes in place, including clear systems of people governance and accountability, measurable time-bound objectives, and regular check-ins. It is also beneficial to ensure that all parties have access to real-time data for transparency between parties.
As a supplier collaboration programme scales, the number of interactions and touchpoints can become large and thus difficult to manage and measure systematically. Making careful choices around your procurement technology stack is key here to ensure that all team members retain access to the data and processes that support their collaboration efforts.
Similar to supplier collaboration, supplier innovation is another high value but more involved supplier engagement tactic. The goal is to unlock and capitalise upon the expertise of suppliers in order to uncover new opportunities for business growth and transformation.
This process takes the form of posing in-depth problem statements to suppliers and inviting them to submit possible solutions. The resulting opportunities can be transformed into proofs of concept, and then scaled to full projects once their value has been proven.
Much like the supplier collaboration process, supplier innovation must also be supported by robust governance. In particular, deciding in advance what criteria must be met for a POC to be deemed a success, instating formal processes for triaging and discarding opportunities, and setting up transparent reporting to quantify and visualise value creation are absolutely essential. As with supplier collaboration, your technology investments should be made with scaling your programme in mind.
Want to swot up further on supplier innovation? Check out our article What is Supplier Innovation?