Getting Value from Class C Suppliers

Getting Value from Class C Suppliers

Smart purchasing departments focus on their Class A suppliers— the ones they use the most. However, many businesses spend a disproportionate amount of time and money on their larger group of Class C suppliers. Digitizing your supplier relationship management can flip this trend so that purchasing departments instead focus attention where it should be: on their high-value, Class A suppliers.

Most purchasing departments follow the common ABC supplier analysis, categorizing suppliers according to their strategic relevance. A Class A supplier buys in high volume and frequency, which is of high strategic value to the business. Inversely, a Class C supplier is rarely used and yet it costs businesses the most.

Every organization has a small proportion of top Class A suppliers, and a mid-range of Class B suppliers. A majority proportion may consist of lower value Class C suppliers, and yet it is this group of seldom-used suppliers that generate a disproportionate amount of effort per order.

Onboarding teething problems

First, there is the cost of setting up supplier master data for storage in the Enterprise Resource Planning (ERP) system, regardless of the number of subsequent business transactions.

In terms of effort, the calculation is simple: the lower the number of invoices per supplier, the higher the cost per invoice. So, it follows that the cost per invoice of a Class C supplier is significantly higher than a Class A or B supplier that invoices regularly.

Then there are the usual teething problems that come hand-in-hand with any new business relationship. It always takes a few orders and invoices firmly under the belt before queries and clarification requests slim down to a comfortable level, or even to zero.

This all makes the Class C suppliers prime candidates for digitization. Following these three steps to digitizing supplier relationship management can specifically improve efficiencies for purchase departments.

1. Standardize supplier onboardinG.First, when creating a new entry for your ERP system, establish a uniform, standardized format for data entry. A web platform could also help. Suppliers could then simply enter their own information—on standardized forms with mandatory fields for completeness.

2. Centralize supplier communications. Centralizing communications will help deal with the issue of multiple queries or requests for clarification at the beginning of a working relationship. A simple solution is a digital purchase file, which summarizes and displays all procurement-related data for purchasing and accounting alongside the relevant departments at your organization.

Another option is to set up a portal that digitally bundles all supplier communication.

3. Digitize document exchange.Businesses save when they move from paper to electronic invoices. Savings vary depending on whether the invoice is being received or sent, whether it is in digital format or simply has a machine-readable top-sheet, and whether associated processes are also digitized. These factors speed the process as they allow skipping multiple data entry and data extraction levels.

Further document digitization could include setting up a dedicated email address for incoming invoices. You could also provide a web portal for suppliers, with standardized steps for the various stages of purchase order, order confirmation, and shipping notification.

These three steps combine to increase processing speed, creating a win on both sides: suppliers get paid faster, while purchasing departments can focus on the strategically important Class A suppliers.