A Preferred Supplier Program is a common technique used in Procurement and Supply Chain to help build strategic supplier partnerships, ensure the best possible pricing, and increase internal compliance with Procurement guidelines. This blog post discusses what these programs are, how they can benefit you, and how to implement a program at your organization.
What is a Preferred Supplier Program?
A Preferred Supplier Program (PSP) is an organized system and process of selecting, engaging and monitoring suppliers that have the potential to bring long-term value to the business, and then encouraging buyers to maximize usage of those suppliers. It is designed to enable businesses to quickly source and procure goods or services at competitive prices with minimal effort and friction. The program requires careful selection criteria for potential partners; evaluation process for potential vendors; contract negotiation strategies; risk assessment/review elements; governance procedures; operational protocols etc., as per the scope of operations involved within an organization’s unique needs and constraints.
The Benefits of a Preferred Supplier Program
The main benefits of a Preferred Supplier Program are:
- Lower costs
- Higher quality
- Lower risk
- Better contract terms
- Higher efficiency
Let’s look at each of those benefits in more detail.
- Lower costs. By having preferred suppliers, companies can negotiate better pricing and reduce the costs associated with acquiring goods and services.
- Higher quality. Developing deeper relationships with suppliers can help ensure they truly understand your business deeply, which in turn helps them provide higher quality goods and services.
- Lower risk. By focusing on key suppliers, companies can reduce the risks associated with supplier non-compliance or contract violations. It also helps guide internal end users to suppliers who you know are high quality and compliant with your requirements.
- Better contract terms. In addition to better pricing, companies can use the PSP to negotiate contractual terms and conditions that benefit both parties.
- Higher efficiency. Streamlined procedures and processes can help to reduce the costs associated with sourcing, procurement and supply chain management.
How To Set Up A Preferred Supplier Program?
Setting up an effective program requires careful planning and consideration of several factors such as selection criteria for potential partners; evaluation process for potential vendors; contract negotiation strategies; risk assessment/review elements; governance procedures; operational protocols etc., depending upon the scope of operations involved within each individual organization’s set up scenario along with other pertinent considerations unique on a case by case basis. Establishing digital systems that monitor performance in real time along with regular reviews against KPIs are also essential components if you want your SRM strategy to generate long-term success over extended periods of time.
Maximizing the Impact
Once you’ve implemented a Preferred Supplier Program, you will want to make sure you get the most out of it. The most critical thing you can do to ensure success is to make sure you make maximum use of your preferred suppliers. To do that, you need to empower your end users to find and use those suppliers.
One of the biggest challenges organizations face with purchasing in general is that end users don’t know where to look for suppliers or how to comply with procurement guidelines. Having a centralized, easily accessible system where employees can very quickly identify preferred suppliers in specific categories will reduce friction and maximize internal compliance.
Assessing Performance
After you’ve gone through the effort to ramp up a Preferred Supplier Program it is important for buyers to assess its progress. This should include gathering feedback from users on their experience when dealing with the suppliers to ensure they are providing an adequate service. Additionally, buyers should track the performance of the suppliers to identify any problems or areas for improvement and work with them to find a solution. Buyers should also look for opportunities to expand the PSP by exploring other potential suppliers and negotiating better terms on existing agreements as needed.
Want to dive deeper?
We’ll be talking about empowering end users through self-service at an upcoming live demo on Wednesday, February 22. Please join us then!
Or if you want to speak with one of our specialists about kickstarting your preferred supplier program, book some time with us!