SIG University Certified Sourcing Professional (CSP) program graduate Christopher Guisinger describes how surrounding the transactional vs. preferred provider approaches and tradeoffs highlights the comprehensive perspectives to consider in sourcing decisions and risk mitigation.
One of the topics throughout our class that has really resonated with me is the preferred provider model compared to a typical transactional-based relationship with suppliers. There are many factors in sourcing that need to be examined when it comes to running sourcing events. Some of the biggest factors in sourcing that need to be taken into consideration are efficiency, spend management, and product quality and innovation. Constantly monitoring and improving these factors is important to maintaining a solid preferred provider model and mitigating risk.
Efficiency is among the most important factors when mitigating risk in sourcing events. Efficiency between suppliers and business users can be crucial to meeting deadlines and maintaining a smooth relationship. As a sourcing specialist, you should always look for suppliers that efficiently make things easier for you and the company. Those suppliers should continue to consistently meet established deadlines and milestones for both large and small projects. By staying efficient and staying on schedule, you mitigate risk for both the provider and the business user.
Spend management can be another tough factor to navigate when it comes to sourcing. In terms of spend management, it can be easier to have a transactional-based relationship and spread work over many different providers so that you are not completely vested in one supplier. However, spreading work over many different suppliers opens you up to more risk. Not having solid relationships with your suppliers and having a common understanding of what you want to be accomplished with the work needing to be completed can lead to discrepancies in the work completed. Having a preferred provider model and understanding the risk associated with each supplier can help you create a more balanced spend management, which will again mitigate risk.
Practicing a preferred provider model will also help you mitigate risk by creating an environment for your providers to innovate and grow alongside you. Through a preferred provider model, the provider and buyer are both invested in the relationship together, leading to better outcomes for both. By having a preferred provider model rather than just a transactional relationship, you encourage ownership by the supplier. When it comes to innovation, such as improving equipment or parts, you will have a supplier that wants to adapt and supply you with the best service that fits your company and what you do rather than have your company fit the mold of the simple products they supply. A transactional relationship is not going to create an environment where the supplier wants to improve your processes or part but just looks to sell you on what they already have.
Mitigating risk is one of the hardest and most important aspects of any sourcing specialist. Many different factors affect risk, and understanding your provider and the risk associated with them can be crucial in a preferred provider model. When you know the overall operation of your supplier and understand the way they conduct business, you can better understand the risk they pose and whether this is a risk you can absorb. By doing your research and understanding the relationship you have with the supplier, you can understand the risk that comes with conducting business with them, whether that be through the risk they pass off in contract negotiations or the actual physical work they do.
In my current role at Honda, we are adapting to more of a preferred provider model where it is applicable. In certain situations, in less frequent sourcing events, we are still taking a more dedicated approach to understanding how our potential suppliers operate and measuring how they are performing. This way, we can begin to have more of a preferred model in those specific niche categories. In the more common categories, such as CAPEX and Facilities, we have rolled out more of a preferred provider approach, helping us to mitigate risk and giving us a better look at our spend management with our providers.
As a sourcing specialist, I hope to take the information I have learned and continue to create preferred provider relationships with my suppliers. I look to better understand the risk that suppliers pose to the company and look at the relationship with the supplier more as a whole. This process has shown me that price is not everything. Price does play a huge factor in deciding what supplier to use, but so does the spend management of certain categories with high frequency and potential for innovation and mitigation of risk. Honda is a large company that can help benefit many of our suppliers. I want to make those providers feel like they are invested in Honda’s success and continue to innovate with us as our ever-changing landscape continues to evolve.
The Certified Sourcing Professional (CSP) Program is a 10-week course that focuses on the hard and soft skills of sourcing, including strategic sourcing and outsourcing methodologies, as well as best practices in negotiations.