Supplier segmentation

From the October 2022 print edition

As environmental concerns continue to take centre stage, businesses are under more pressure than ever to act sustainably.

According to a Deloitte study, 45 per cent of Gen Z consumers have stopped buying certain brands due to sustainability concerns. Other stakeholders such as employees, investors, and governments, also expect better business practices.

Sustainability is now a topic for many boards. But it needs to be established on the corporate agenda for good. To make this happen, we need to rethink how we work with suppliers.

Organizations are recognizing that they will make little progress in sustainability without the full participation of suppliers. At the heart of this is accurate, current, and complete supplier data.
To collect, analyze and report on this data as it relates to sustainability, large organizations are running hundreds of data gathering exercises a year. But simply surveying suppliers regularly doesn’t necessarily lead to the best results.

To make the most of these exercises, it’s essential to communicate with the right supplier segments for each campaign. Consider essential information goals, and how they can be reached. What information is required? Why and how often? Who is best placed to provide this material?

Investing the time to plan the survey approach leads to efficiencies. For example, an organization may need to determine whether it is following sustainable packaging regulations. Procurement can group suppliers by category and country and set up a process in which data is received in a sequence, starting with suppliers in countries with stricter legislation.

Mastering supplier segments
Many organizations still issue substantial surveys to all suppliers, leaving most recipients to figure out which questions, if any, are relevant to their businesses. Surveys should only be sent to those suppliers – and, ideally, specific contacts – for whom the questions are intended. This is key to receiving quality information.

For example, if a sustainable packaging survey is sent to a broad supplier group, there’s a chance that many recipients wouldn’t know whether or how to respond. A creative agency might translate packaging to mean promotional boxes they designed, whereas a manufacturer might consider the shrink-wrap and pallets they use for shipping.

If suppliers don’t know whether surveys relate to them, they cannot prioritize the task accordingly: those who shouldn’t respond will spend time determining this; those who should, may underestimate the task’s significance. Suppliers in the first group will lose time, impacting performance, and the quality of responses from the second could be diluted.

Poor supplier communication is just one of many friction points they experience in working with organizations. A survey by HICX revealed that 46 per cent of CPOs know they need more streamlined processes in the working relationship.

Other bugbears, such as late payments, impact the relationship. This way of thinking forms part
of the supplier experience management movement, which calls for businesses to remove friction across supplier relationships by prioritizing a single source of truth in supplier data. The result is partnerships with suppliers, enabling mutual success.

This also yields good data and therefore an even better supplier experience, creating a flywheel effect. Further to generating supplier data, the master list must also be maintained. It should include all survey responses and changes to any details, such as category or address.

By segmenting suppliers to extract strong data, procurement can work more efficiently. Good data makes it easier to communicate with suppliers, find details like certificates and run surveys quickly. It also creates transparency.

Digital workflows
Organizations can be called on at any time to share reports. Therefore, it’s a good idea to ensure environmental programs are measured and reported to stakeholders. This helps to establish benchmarks to measure progress against and refine results.

This is where digital workflows are essential. For every sustainability program, look at the workflow, consider the manual sections and ask ‘next time we do this, what should we do differently?’ Then optimize the workflow and continue to build.

It’s helpful to include automation rules, for instance, recording changes to a supplier’s status and automatically moving them to another segment if necessary. With each completed survey, it gets easier to assess results and iterate for efficiency. Soon enough, all the mechanisms will be in place to serve sustainability requests more quickly. This allows the process to scale.

Now is the time for business leaders to take stock of their environmental programs and challenge the status quo. Sustainability is too large a topic to treat as a series of one-off activities. Rather, operationalizing the processes behind sustainable business practices, through digital procurement,
is the way forward.

Anthony Payne is CMO of HICX.