How to Calculate your Return on Investment for Supplier Engagement

I’ve been told that the idea of supplier engagement can come across as ‘fluffy’. Particularly in the frantic, tough world of retail. And we certainly have had a tough few years, haven’t we?

Yes, engagement is about respecting and supporting people. And yes, I believe a people-centric approach makes the world a much better place for us all to live and work in. But that’s not to say engagement is a loss-making investment to satisfy the soul – quite the opposite.

In this blog - the last in my mini-series of Three Things your Boss Wants to Know about Supplier Engagement - I want to share just some of the ways I measure ‘that soft stuff’ (which, by the way, is definitely not limited to the HR department) in cold, hard cash.

Part 3: How to calculate your return on investment for supplier engagement

Supplier engagement is about growing motivation and understanding among your suppliers through communication, support and transparency. And doing this successfully increases the efficiency for both the retailer and the supplier of the day-to-day interactions and the flow of ideas between retail and supplier teams.

Think of supplier engagement as tuning the gears on your car. It makes the engine and wheels work more efficiently together. But even better, it makes it easier to change up a gear. You get there faster and using less fuel – saving time and money. And you end up learning a thing or two whilst tinkering under the hood.

Driving ROI with Supplier Engagement

The return on investment (ROI) of supplier engagement becomes visible as you start to do things more quickly whilst using less resource and increasing innovation in the process. But that’s not the whole story. Here are just a few of the departments in retail businesses that can realise ROI from supplier engagement:

The obvious: product development and procurement can get products on the shelves more quickly by reducing iterations on specifications and artwork, and gain access to the latest ideas and innovations as their supplier’s partner of choice.

In your business, what is the value of avoiding a one week delay in getting a new product onto the shelf?

The obvious: technical, quality and compliance teams can reduce resource costs for day-to-day supplier management and supplier performance management activities. Through a supplier self-help portal, they can share policies, process and answers in a consistent and cost-effective way. The resulting ‘engaged’ supply base will prioritise their requests and focus on 'right-first-time'.

Automatic notifications, reminders and engagement KPIs can often save as much as £100k (US$150k) per year from reduced resource progress-chasing suppliers.

In a project I was party to, the retailer estimates savings of over £500k per year ($750k per year) from the increased accuracy of specification and commodity data for own brand products achieved through improved supplier engagement.

The less obvious: customer service departments can deliver more comprehensive responses, more quickly to customers. They can empower continuous product and service improvement by involving suppliers in customer engagement activities; giving them visibility on large and small complaints alike.

It is claimed that over 30% of purchasing decisions are made based on product reviews online. Do you know what the cost of a poor review is to your business, and how much you could save by responding quickly with the support of engaged suppliers?

Supplier Engagement, In Figures

Let’s take the example of one supplier engagement activity - implementing a basic supplier self-help portal - that has helped our clients save thousands each month.

On average (very conservatively), one in three supplier views of an article, FAQ, policy document or ‘How to’ video stops a call to one of your employees or associates. Typically we see over 1,000 such self-help views per month for an own brand community of around 500 suppliers. That equates to 300 fewer calls and emails your teams need to manage every month. The industry benchmark cost for responding to those calls or emails is over £20 (US$30) each. You’ve just saved over £6,000 per month (US$100k/Year).

And this is only the direct savings. Your employees and associates are now free to focus their attention on other value-add activities. Hello, innovation! And your products are more consistent and your processes more compliant because suppliers have access to the what, the how and they why 24/7.

Over the past few weeks, I’ve hopefully helped some of you see that your business does need supplier engagement, that it can be easily incorporated into your existing supplier management strategy, and that it will bring a significant return on your investment.

In my next blog, I share my advice on dipping your toe in or taking the plunge: How to pick your first supplier engagement initiative and measure its success.

Tags: Supplier development, Supplier engagement

David Taylor

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