Strategy

How Automated Vendor Tiering Tells a Story About the Vendor

E
Ethan Healy 1 year ago

How Automated Vendor Tiering Tells a Story About the Vendor

This short blog will explain why it’s important to have the right metrics and data to hand when making decisions that affect your supply chain.

One of the most important things you can do as a business is to ensure that the procurement office is fully prepared and equipped to continually support vendor management in their efforts to get the most out of the supply chain, but, how can this be made easier for vendor management? In order to ensure maximum value for money from the most important vendors, considering performance metrics is key. By using the right metrics to measure vendor performance, vendor management is able to spot gaps and failings that may pose a risk to the business in the near future. Below are some of the metrics BVA recommend you measure:

  • Relative Cost – how do the prices of the vendor’s products or services compare to those of other competitors? By measuring this, a contract or performance manager can clearly see if the business is getting value for money, or not, from a vendor.
  • Critical Service Layer – how important is the service that the vendor provides for the business? If the vendor is critical, reviews need to be regular and thorough to ensure consistent service delivery.
  • The Risk to the Business – this is a key characteristic to consider, summarising the overall impact the vendor could have on the business should they fail, and the likelihood of these consequences occurring. The higher the risk from the vendor, the more regularly you should review them.

By using the above, vendor management is able to produce valuable insight into the vendor. This can inform the next steps of a contractual agreement with the vendor, extend partnerships, build relationships further, or just gain some drilled down information for comparing vendors across your portfolio. Ultimately, it is critical that vendor management can use accurate and insightful data to inform their judgments, to either improve, maintain or create better relations amongst vendors, and maximising the value for money gained from contractually agreed terms with the vendor. So what should these metrics actually do for Vendor Management? Brooklyn Vendor Assurance uses a range of algorithms (based on your metrics) to generate scores for vendors. These scores provide a swift, handy way for any front line team to assess their vendors:

  • An overall score on the vendor – from the measurements dependant on their current-state, you should be able to get a basic overall score on the vendor to determine the next step, their tier.
  • The vendor tier – from the scores measured against supplier performance and relationship, the platform generates a group of thresholds which produces a tiering system. The vendor automatically falls under one of these tiers. This tier will determine their importance to the business. For example, if your vendor is a Tier 1, either critically or strategically, they are most likely to be very important to the company, such as cybersecurity services.

By tiering your vendors, BVA takes vendor management a step further. Based on the tier, the platform automatically creates;

  • A suggested review frequency – The higher the tier of the vendor, the more regularly you should meet with them. With large contracts or critical functions, there are often more obligations that need to be met. By using regular reviews, you can ensure that the vendor meets these obligations.
  • A suggested checkpoint – To ensure your meetings are carried out “with substance”, rather than meeting simply for meeting’s sake, you will need to have a set amount of discussion points to ensure you are thoroughly monitoring the vendor’s performance. The higher your vendor is in the tier rankings, the more areas of discussion there are.

Ultimately from all of these measurements and automated statistics, you are able to get a greater idea of how critical and strategically important a vendor is. Allowing vendor management to implement these measures across their vendor portfolio will help to improve the scores you gather and conclude the tier your vendor falls under, helping vendor management to figure out how to treat their vendors and consistently maximise value across the supply chain.

If you would like to find out more about how Brooklyn Vendor Assurance help to automate these activities and improve the decisions your supplier management function makes, contact info@brooklynva.com or visit our Contact Us page to get in touch.

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