No procurement professional would dispute the importance of understanding exactly where and whom their company is buying from, down to the specific terms and rates of each agreement.
But at the same time, it’s difficult to keep tabs on all of your company’s spend, secure the best rates and mitigate risks, particularly when you’re managing a portfolio of thousands of suppliers. Not to mention that deciding who to spend with can be an extremely time-consuming process.
For this reason, every organisation should consider implementing a preferred supplier programme. This means establishing a list of your top suppliers with whom you will prioritise spending – these supplier will have been thoroughly reviewed and assessed before making it on to your preferred supplier list.
The benefits of a preferred supplier programme
- Reduced cost – A preferred supplier programme makes it easier to negotiate advantageous pricing and improve payment terms.
- Improved quality of service – preferred suppliers better understand your business due to the more intimate nature of your relationship, which means they’ll be better-placed to meet (and exceed) your expectations.
- Communication is more straightforward – When problems arise it’s much easier to communicate because you have a history of working together.
- Lower risk – A preferred supplier programme is an important way to mitigate supply chain risk. You know these suppliers are compliant and will adhere to regulations. An increased level of trust and reliability means your business can benefit in other ways, such as choosing to keep inventory levels low.
- Better contractual terms – Both buyer and supplier benefit from a preferred supplier programme.
- Increased efficiency – Buyers across your organisation will find it quicker and easier to do business with preferred suppliers.
- Improved consistency – By definition, preferred suppliers should be as loyal to you as you are to them. They’ll prioritise your business and deliver a consistently high-quality service. This means you won’t be required to switch vendors quite so frequently.
How to implement a preferred supplier programme
1. Assess your current buying landscape
It’s important to know where your organisation stands right now. Do you currently have any preferred suppliers? Assess your organisation one category at a time and analyse where you are spending the most money.
2. Clearly define your requirements
What does it mean to be a preferred supplier? How many preferred suppliers will you need for each category? What are your organisation’s key requirements for awarding preferred supplier status? You’ll need to assess your current supplier landscape in order to identify potential preferred suppliers from your existing portfolio.
The main downside of creating a preferred supplier list is that it could limit your organisation’s creativity, innovation and flexibility. It’s important that those tasked with compiling this list fully understand the business’ needs and the specific goals of different category managers. Bear this in mind when identifying suppliers for your preferred supplier list and be sure you don’t exclude SMEs or diverse and minority-owned businesses.
3. Approach your chosen suppliers
Explain the value of your preferred supplier programme to your chosen suppliers. For example, as a preferred supplier, they will have additional business opportunities and a number of reciprocal benefits, such as a shorter contracting process, less risk and pre-negotiated prices.
Clearly outline your terms and expectations (e.g. do you expect high-volume order discounts?) and give your suppliers an opportunity to pitch theirs.
4. Assess the progress of your preferred supplier programme
The process doesn’t end once you’ve reached an agreement with a supplier and officially added them to your preferred supplier list. You’ll need to seek feedback from buyers on how effectively the programme is progressing. For example, is your organisation’s spending gradually being directed towards your preferred suppliers? Is the programme noticeably making life easier for buyers?