Higher Education Institutions Can Increase Value and Minimise Risk with Holistic Supplier Management
Holistic supplier management is a concept that is gaining ground in many sectors and has been given further impetus in recent months by the uncertainties, risk, and disruptions to supply chains created by the coronavirus pandemic. But what are the specific challenges for supplier management in the higher education sector?
Higher education faces additional challenges
Higher education is a very decentralized environment with a stakeholder base comprised largely of academics and researchers. Each of them is primarily focused on how they can best meet their individual needs. This can make life especially difficult for procurement professionals who are trying to manage suppliers in a holistic fashion, as well as making it difficult to get any leverage in negotiations with suppliers.
Individual academics and researchers very often have difficulty seeing any direct benefit of centralized procurement other than maximizing the buying power of their budgets (and even this may not be high on their list of priorities). They may have professional relationships with suppliers whom they regard as partners, and they may take a dim view of any hard bargaining that threatens those relationships. But of course, supplier management is not just about saving academics, departments or the college or university money. It’s also about the efficiencies and quality improvements that you can create. How do you communicate this?
Higher education has also undergone considerable change over recent years. Institutions are open to much greater scrutiny and the sector as a whole rising pressure to manage spend, as operating costs climb, and organizations face greater competition. Closer scrutiny also means that HE procurement officers must be more robust, realistic, and transparent about their relationship with suppliers. This means even greater pressure to ensure that purchasing is kept within a framework and institutional agreements. Often, departments will assert that centralized procurement and consortia lack the specialist knowledge necessary to buy effectively within these frameworks.
Do more with less!
Academic institutions are also under increasing pressure to demonstrate social and environmental best practices in their choice of suppliers. And if that wasn’t enough to worry about, universities currently face a “black hole” in revenues as a result of coronavirus, which will put procurement under even greater pressure to spend more effectively. In short, do more with less.
Supplier management focuses on value and risk, not spend volume
Holistic supplier management is an important aspect of getting on top of these challenges. A holistic approach takes account of how individual suppliers fit into the total mix and allows you to manage them accordingly. In the article “What Makes a Supplier “Strategic”? Not Spend Volume.” and in our Holistic Supplier Management white paper we suggest using a fairly simple matrix that classifies suppliers across two axes, Relative Value and Outcome/Impact Risk.
This puts suppliers into one of four boxes: High-Value Strategic, Low-Value Strategic, High-Value Non-Strategic and Low-Value Non-Strategic. Academic institutions that have started to embrace holistic supplier management may use other terminology (e.g. preferred, approved non-classified, etc.) that maps roughly onto these.
A core concept of holistic supplier management is that it is not spend volume that is the determining factor in how you manage a supplier, but the cost and financial risk to your business that matters.
How might this supplier matrix apply to an academic institution?
It very much depends on its nature but, for example, certain categories of laboratory equipment would fall into the High-Value Strategic category: they perhaps do not represent a high spend volume, but they are vital for the institution to carry on with its research endeavours, and it may be difficult to find an alternative source. It makes sense to work closely with these key suppliers by sharing knowledge and expertise.
Many categories of IT suppliers are vital to an academic institution’s continued so-called bottleneck suppliers: they are “high risk” in that their non-delivery will seriously harm the institution’s day-to-day running, but “low profitability” in that their services do not immediately add value to the company’s bottom line. The challenge here is often to manage the supplier in such a way as to ensure continuity of supply without becoming locked in.
By contrast, a catering company might account for a high volume of spend, but it should be managed and judged based on the value it delivers in relation to its competitors. There are alternatives and they can be brought on board (relatively) easily. Holistic supplier management helps an academic institution to understand market dynamics and manage suppliers accordingly.
Stakeholder buy-in is key
In higher education more than virtually any sector, you need to get buy-in from your stakeholders among faculty and the institution’s leadership. The best thing to do is make them part of the process by listening to them and understanding what they really need; then explain your supplier management strategies in a manner that is beneficial to them individually and in the best interest for the institution as a whole.