Sustaining High Performance through

Effective Supplier Development

By Avaneesh Gupta and Brett Margolis

Thanks to the long-term

uncertainty regarding the timing
and extent of global economic
recovery, it is becoming more
important for organizations to
establish strategic ties and
collaborative relationships with
key suppliers to overcome the
myriad of challenges and
increased risks associated with a
more volatile operating
environment.
The purpose of supplier
development is to improve
supplier capabilities and enable
them to provide better quality
and delivery, lower cost
products & services on time,

bring in innovation to support

clients sourcing & procurement
targets and sustainable
development objectives, at the
same time increasing supplier
profitability as an extension of
the benefits delivered to their
customers.
Supplier development, an
integral part of SRM framework
as shown in figure below, is the
joint process between a supplier
and the buying company for
carrying out innovative projects
and activities, beyond existing
contracts, aimed at shared goals
(e.g. Collaborative product
design and development,

Figure 1. Positioning of Supplier Development Work

Successful Supplier
Relationship Management

Vision & Strategy

Target Setting & Performance Monitoring

Source for SRM

Source for SRM

Manage Supply Base

Strategy
Development

Contract
Management

Contracting

Compliance
Management

Supplier
Performance
Management

Integrate / Collaborate
Supplier
Development
Identify &
Enable
Integration

Enablers
People
Organization

Technology

Development of new products,

services, or processes, CI
Collaboration, Joined investment
and Sourcing initiatives) and
obtaining a competitive
advantage and optimal added
value for both parties.

Trends shaping the need for

Supplier Development
Key trends shaping the need for
organizations to focus attention on
supplier development include the
following:

Risk Minimization
Risk anticipation, monitoring &
mitigation play an ever increasingly
important role in these times of
economic uncertainty. Unabated increase
in raw material cost, energy prices and
further pressure due to increased labor
costs and currency appreciation, quality
and delivery under-performance have
put number of vendors in China and
other low cost countries at a greater
financial and operational risk. Leading
organizations are working in close
collaboration with their key suppliers
helping them identifying new ways of
working which improves their bottom
line performance and ensuring the risks
organizations are exposed to is
minimized to a greater extent. A
recently-published study 1 conducted by
Accenture in collaboration with
Massachusetts Institute of Technology
indicates that 77% of the companies
surveyed in that study indicated that 2
out of the top 3 major procurement risk
factors were related to suppliers (in first
place was dependency on supplier,
second was unanticipated price
volatility and in third place was
supplier quality problems)

Cost Reduction
Procurement leaders are realizing the
opportunities for further cost reduction
from a Total Cost of Ownership (TCO)
standpoint by working in close
collaboration with key suppliers across
the lifecycle of the product. For example,
during the product development stage it
is critical for suppliers to develop
products and samples from the large
scale production feasibility aspect
rather than trying to make customized
and/or over-engineered samples.
Accenture worked with suppliers of an
agricultural equipment client to carefully
ensure that during the product approval
process, sample products were also
evaluated on their production capability
to be mass produced and this
1. Source: High Performance in Procurement Risk Management

contributed to the 99%+ first time

approval for those products brought
through the process. Close interactions
by key suppliers with buyers to
proactively advise them of alternative
ways of making the products may reduce
the operation cost and create a win-win
situation for both parties. For example,
in garment making, during the sampling
stage buyer can advise their suppliers to
use folders (at appropriate places)
which facilitates combining a set of
operations and getting it executed
through a single operator rather than
each operation executed by specific
operator. This not only leads to improved
productivity but as well as better quality.
Similarly, close collaboration at the mass
production stage unlocks substantial
opportunities for cost reduction, which
can only be realized if the both the buyer
and supplier collaborate closely to
remove cost at all stages of the product
lifecycle. For example, in garment
manufacturing sometimes buyer
recommends to have increased inline
inspection points to ensure getting the
right quality products. However,
increased inspection further deteriorates
Rolling Through put Yield (RTY) which is
calculated as multiplication of First Pass
Yield (FPY) at various check points ,
Working together with their suppliers
and helping them to build quality in
processes not only helps eliminating
redundant inspection efforts but also
improved RTY and accountability in the
system.

Corporate Social
Responsibility/Compliance
Issues on the Increase in
Asia
Recently there has been an increase in
compliance violations issues in Asia,
specifically in China. Particularly, many
large organizations are under fire for
underpay and overtime situations.
The situation has been further
exacerbated due to the global crisis as a
number of key suppliers have stopped
hiring new workers and forced the
existing workforce to work longer hours.
Achieving the right level of compliance

and to ensure that brand image does not

suffer as a result of non-compliance is a
core tenet of ensuring a sustainable
relationship with key suppliers. Working
in close collaboration with suppliers, to
ensure that workers receive at least the
minimum legal wage and are
appropriately compensated for overtime
hours is a basic necessity. A direct
impact in compliance improvement can
also be achieved without increasing
product cost through assisting suppliers
to improve their productivity and quality.

Innovation through
Collaboration
An increased focus of working closely
with key suppliers from the initial stages
of product development leads to
differentiated and innovative products at
competitive prices in the market place.
Rather than providing technical
specifications which in many cases
limits the innovation as most of the
design details are fixed - leading players
provide functional goals to the suppliers
and let them come out with innovative
ideas.

Going Green
As natural resources become scarcer and
measures to reduce pollution and global
warming increase, the continued trend
to go green is accelerating. Innovative
companies are finding another
compelling reason to adopt leaner and
greener practicesthe economic and
environmental benefits. Working closely
with suppliers - to improve the
effectiveness of their operations and
reduce waste through alternative
material usage, improved material
utilization, transportation optimization
to reduce carbon emissions etc. facilitates the journey to becoming
greener.

Benefits of embarking on Supplier

Development Programs
The current changing economic
environment and global sourcing
landscape has made it imperative for
buyers to forge strategic relationship
with their key suppliers. Accenture sees
the following key benefits resulting from
a well-implemented supplier
development program:

Better Alignment of Business

Objectives
The closer alignment of Buyer and
Supplier values facilitates the
development of trust-based relationships
which inspire greater collaboration and
opportunities for increased innovation.
Supplier development initiatives help
suppliers to understand buyers values,
Brand DNA and thereby getting the
right product out in first time
meeting/exceeding the expectations of
customers.

Achieving Sustainable Cost

Reduction
Though an investment is needed to
implement Supplier Development, it is
proven to bring direct financial benefits
once in place. Building leading practices
and indicators into the supply base helps
to unlock substantial value and cost
reduction. For example, based on
Accenture experience in the Retail
industry, typical ROI of 4-5 times can be
achieved by investing in SD programs
within a year time frame. Furthermore,
these savings can be sustained on an
ongoing basis.

Achieving right and

consistent quality
Supplier Development facilitates the
development of a quality culture in the
supplier organization, making sure
quality is built into the process, and
helping clients to move towards vendor
independence. Based on Accenture
experience, clients can typically achieve
10-15% of First Pass Yield (FPY)
improvements in retail, and 30-40%
improvement in first pass part approval
rate in the industrial equipment industry.

Reducing risk in the supply

chain
Supplier Development initiatives can
5

help to reduce supplier operational and

financial risks, particularly related to
buyers increasing dependence on its key
suppliers, supplier quality issues, supply
shortage issues and unanticipated price
volatility etc. at each step of the risk
management process - anticipation,
monitoring and mitigation. In fact,
Accentures study on procurement risk
indicates clearly that 67% of
procurement risk masters conduct
in-depth supply market analysis to
monitor the possibility of bankruptcy and
supplier failure. In a downturn, the
supply chain risk strongly increases since
the risk of bankruptcy increases
throughout the supply chain and thereby
it is important to have closer ties with
strategic partners to mitigate the risks
and its potential impact.

Gaining competitive advantage

Leading companies take a downturn as
an opportunity and look for
institutionalizing leading practices in
their organization so that they are all set
for reaping the gains and best prepared
for the upturn. Companies can get ahead
of the competition through new product
development and innovation. Working in
close collaboration with suppliers, helps
bring innovative and irresistible
products & services to the market place
faster to differentiate the buying entity
from its competitors.

Improving Sustainability
Supplier development initiatives lead to
enhanced collaboration between clients
and their suppliers as well as to efficient
and effective usage of resources by
adopting lean practices. Removing the
waste across the whole supply chain
helps to make it lean and green. For
example, in the fashion retail industry,
marker utilization can typically be
improved by 3-4% by making
appropriate adjustments in width and
length, end losses etc. which potentially
can lead to millions of $$ worth of fabric
savings in the industry which otherwise
will go to waste.

Minimizing Compliance risks

Compliance can be significantly
improved by improving productivity and
quality which helps to alleviate excessive

overtime and underpayment. For

example, based on recent work
conducted by Accenture on Supplier
Development with a leading European
retailer, the overtime situation of our
clients key suppliers was reduced by
30-40% by enhancing quality &
productivity and thereby greatly reducing
the risk to the companys reputation,
erosion of shareholder value and market
share that can occur as a result of
supplier non-compliance.

Instigating Continuous
Improvement (CI)
Leading buyers work with key selected
suppliers to improve the suppliers
performance and define a roadmap with
actions leading to improved processes
and outcomes for both parties. Periodic
targets (for 9-12 months) are set jointly
between the Buyer and its suppliers and
mutually agreed upon. Buyers as well use
these targets in their regular review
session with suppliers and ensure a clear
action plan is in place and is followed to
achieve the desired targets. On the other
side of the coin, supplier development
focuses on helping suppliers retain the
learning that occurs in the development
process. Retained learning enables
suppliers to continuously improve their
own systems. Further, a supplier which
has retained its ability to improve can
further develop its own suppliers. The net
effect is a more competitive supply
chain. A formal agreement should be
developed with clearly defined clauses in
contracts around KPI improvements,
price reduction requirements & business
growth plans. Moreover, financial
benefits accrued from CI initiatives must
be reasonably shared between Buyer &
Supplier, creating a virtuous circle of
continuous improvement and
strengthened collaboration.

Developing new vendors

To overcome too much reliance on
specific suppliers, to avoid
mono(duo)-polistic situations, or to
increase available capacity/shorten lead
times, supplier development initiatives
can help to introduce alternative
suppliers that are equally or more
capable of providing products and
services to the buyer.

Characteristics of High Performers

Accenture studies have revealed that
procurement masters typically have
implemented supplier development
programs. Per Accentures definition,
procurement masters:
Excel across the board
Achieve high performance through
procurement
Achieve higher savings
Face fewer organizational challenges
Procurement masters have a clear
advantage over the competition:
Fundamentally, they operate more
efficiently and effectively than
companies that do not excel in
procurement. Below are the leading
practices followed by masters relevant to
establish and execute successful Supplier
development programs.

Workforce and organization

Training and Development

Masters have a formal supplier

management organization and dedicated
supplier development teams

Masters build and customize training

programs and provide training to
suppliers

Masters have a clearly defined

reporting structure for the Supplier
Development function

Masters demonstrate concepts and

technical improvements through pilots

Masters focuses on high value

relationships

Masters provide a feedback loop for

suppliers to help encourage supplier
development efforts

Masters utilise advanced performance

management and collaboration
techniques to drive maximum value from
the relationship

Masters encourage suppliers to

contribute to improving processes at the
buyers facilities across the product
lifecycle

Masters have Win/Win mentality and

culture

Sustainability Development

Masters put Skin in the game on

both sides with joint investments,
process improvements and shared risk
and reward (contractually bound)

Supplier Relationship
Management

Masters have a clear

roles/responsibilities and governance for
SRM within and outside of procurement

Masters apply a supply-base

segmentation strategy, implementing
differentiated approaches/processes by
supplier segments and tiers.

Masters use cross-functional teams

(engineers, logistics) including key
representatives from suppliers to drive
innovation and improvement

Masters focus on key suppliers and

establish with them long-term
partnering agreements on a risk-reward
sharing basis and have intensive
cooperation through mutual knowledge
sharing

Masters implement defined

relationships between the organisation
and suppliers at differing levels (senior,
middle mgmt and site level) to gain
enterprise wide commitment

Masters have a formal supplier

development program in place to
manage the supply base
Masters build the right selection
criterion and target KPIs into the
sourcing process
Masters have well defined policies,
SRM processes and Methodology
deployed across organisation.
Masters have clearly defined and
standardized KPIs
Masters utilize supplier performance
information to drive improvement and
value

System/Technology/
Measurements
Masters measure suppliers
performance, across different regions, in
a standardized way to facilitate cross
comparison of regional performance
Masters have automated processes in
place that tracks supplier performance to
provide periodic dashboard reports for
senior management review
Master have supporting technology for
tracking and improving sustainable
procurement

Masters organize frequent supplier

review & collaboration sessions with
joint improvement plans

Masters have a partnership approach,

joint process and product improvements
with regular performance target
measurements for key suppliers

Masters define clear action plans and

review cycles with defined meeting
attendees, agendas and structures to
follow

Masters have supplier handbooks in

place, which describe the collaboration
and requirements of the suppliers,
tracked by service level agreements

Masters obtain 360 Feedback from

suppliers
7

Masters focus on waste reduction,

leading to lean and green value chain
Masters have specific procurement
talent with defined performance targets
and dedicated to drive sustainability
Masters focus on active reporting,
auditing and communications on
sustainable value
Masters use supporting technology for
tracking and improving sustainable
procurement
Masters emphasis is on sustainability
beyond the code of conduct

Challenges of implementing a Supplier

Development Program
Organizational Maturity
Based on aspects such as industry,
company culture and location, the
organizational maturity and
sophistication with regards to supplier
relationship management (SRM) differs
widely. Companies without a strategic
SRM program in place can only recognize
the benefits of a supplier development
program with much difficulty. It is
important for the organization to
recognize that not all the suppliers can
be treated at the same level and a
differentiated SRM approach needs to be
applied for different levels of suppliers.
Collaboration with key strategic suppliers
is a must as these suppliers are a major
source of competitive advantage. Getting
the buy-in and clear understanding from
top management on the need to embark
upon supplier development initiatives
and associated financial, resources and
time commitment is absolutely critical.
For example, based on Accentures
experience working with Retail
organizations in Greater China, most of
the local fashion retailers do not
necessarily have well-defined SRM
programs in place. The path towards
supplier development initiatives may take
another year or so to instill the basic
fundamentals of SRM before embarking
on advanced development initiatives.
However, multinationals sourcing from
Greater China typically have a more
mature SRM framework in place and the
need for establishing strong partnerships
with strategic suppliers is well
recognized.
Another complexity we have seen of
implementing SRM programs is lack of
accountability and clear ownership of
vendor relationships. For example,
within Retail companies, the Merchant is
responsible for the vendor relationship,
negotiating cost and vendor funds, but
does not have visibility to the vendors
shipping performance and its effects on
the total cost to stock the product. If
the Merchant is measured (incented) on
a P&L that does not include Supply Chain
costs, there is an inherent disconnect.
Many organizations struggle with this
shared ownership of vendor relationships
between merchandising and supply
chain.
8

Promoting the business

case
For an organization to establish and
execute supplier development programs
with their key suppliers, financial and
resource commitments are needed from
both sides. The organization must be
willing to invest time and money to train
suppliers, work with them closely so that
appropriate opportunities from design to
product development to production and
after-sales service can be identified. On
the other hand, suppliers should also be
willing to invest in terms of enhancing
their skill set from a resource and
technology standpoint in addition to
execution capabilities. Helping all
companies to agree on the gains and
make the investment when both time
and money are in short supply is
nonetheless a challenge. Building a
credible business case is essential to
moving ahead with an effective Supplier
Development program. In most cases,
buyers opt for third party help to set up
and execute supplier development
program with their strategic vendors.

Maturity level / Readiness

of Suppliers
Obtaining buy-in and support from the
supplier is just as important as buy-in
and support from within the company.
Suppliers should not see supplier
development initiatives as a one-sided
benefit only for the buyer. In general,
there is tendency with suppliers to see
these initiatives as more of a forced
investment from buyers. The buyer needs
to educate their vendors about the
necessity to change, adopt leading
practices and innovative ways of
working, jointly create win-win
opportunities for both sides, establishing
trust based relationship and be an
integral part of buyers growth story. This
will enable them to create and deliver
products/services aligned/exceeding with
buyers expectation and helping them
capture a bigger pie of buyers business
volume.
Moreover, supplier development
programs needs to be pitched at the
right level of supplier maturity otherwise
supplier development initiatives fail

through either by being

over-complicated or over-simplified. For
example, as depicted in the figure above,
the suppliers quality level (improve
product, improve process etc.) should be
clearly determined and the right set of
quality tools applied to implement
effective quality and process
improvements.

Figure 2. Improvement of Supplier Quality Level

Level of
improvement
of process/
product

Focus on risk
prevention
Improve
Operation al
Process

Focus on
process
robustness
Focus on
product
control

(Use of complex
statistical tools

Improve
Process

Focus on
product
control

(Best
Practices...)

Improve
Process
Design

(Use of basic
statistical tools :
SPC, 5S, Kaizen,
SMED, 8D...)

Improve
Product
Product
sampling Vendor
Selection

Complexity of
Implementation

Accentures Supplier Development Approach

Considering the value creation
opportunities and potential benefits to
organizations by developing closer ties
with key suppliers, Accenture has
developed a holistic approach to Supplier
Development program. The overall
approach (refer to Diagram 1 ) consists
of three phases:

Assessment Phase: focuses on

establishing the current state and
identifying quick win/ longer terms
opportunities. This step includes both
Qualitative and Quantitative assessment
from Quality, Cost, Design, Delivery,
Management, and People (QCDDMP)
perspective. The key outcome of this step
is a detailed assessment focusing on
improvements, identifying baseline of
various KPIs and qualification of
potential savings opportunities.

Improvement phase: focuses on

developing capabilities in the supplier
base by making the process, system and
org changes substantiated by training
and pilot demonstration leading to the
realization of potential savings
opportunities and QCDDMP
improvements identified in the
assessment phase. Showcasing the
improvements live through the pilot
lines or equivalent helps to achieve
widespread consensus and buy in which
in turn facilitates developing
sustainability of initiatives across the
wider supply base.
Sustainability Phase: focuses on
establishing continuous improvement
processes and measurements. Longer
term targets for Quality, Cost, Design,
Delivery, and Compliance are set and
mutually agreed by clients and suppliers.
Longer term programs are defined and
backed by a clear business case to
achieve target outcomes and
sustainability of initiatives. Monitoring
metrics is as well defined to track the
suppliers performance improvement
against the set targets.
Accenture has worked across industries
with number of leading industry players
and successfully helped them to embark
on supplier development program. Some
key examples of successful supplier
development are described in the
following.

10

Example 1: European
Fashion Retailer
The Client has in excess of 1700 retail
outlets around the world and sources
from approximately 800 independent
suppliers, primarily in Asia and Europe.
With the backdrop of major currency,
labor & raw materials fluctuations, to
support its aggressive business growth
plan, client wanted to reassess its Asian
supply base. The major concern is around
current capabilities of strategic suppliers
in developing a sustainable supply chain
that achieves its financial and business
growth objective as well as corporate
social responsibility.
Moreover, the client didn't have a
standardized yet customized and
formalized supplier development
program in place applicable across
multiple regions and multiple product
categories which could bring about
transparency as well facilitate regional
cross comparisons.
Accenture worked with more than 30
vendors in various phases across multiple
regions and multiple categories in Asia.
A well-defined supplier development
program, aligned with the clients
strategic vision and objectives,
facilitated quickly assessing suppliers
pain points and identifying potential
value creation opportunities. Showcasing
and demonstrating how to realize these
opportunities in actual practice through
a controlled pilot gained trust and active
participation by suppliers. The project
resulted in improving First Pass Yield
(FPY) by 5-20% (varied by product type
and region), efficiency of production
lines by 10% to 40% (varied by product
type and region) from the baseline, and
minimized compliance issues.

Example 2: Global
Manufacturer of
Agricultural Equipment
The client has many well known brands
and nine production sites across Europe,
North and South America. The client
wanted to investigate and realize savings
through global sourcing with a specific
focus in China to integrate and optimize
its supplier base, securing the

commercial business case and driving

significant cost savings through supplier
development.
The supplier development program was
conducted in two phases. The first phase
focused on supplier audit and selection
with the objective of conducting onsite
supplier audits and technical reviews.
The second phase centered on product
qualification with a focus on tooling &
gage planning, product/process
development & validation and corrective
actions.
The program facilitated the client to
source parts through new identified
vendors. Through project management,
supplier cooperation, PPAP process
follow up, 99.02 % of supplier parts
were realized and approved at first time.
The average landed cost saving identified
was around 27%.

Figure 3. The Supplier Development Approach

Project & Change Management

1. Assessment phase

High level Assessment

2. Improvement phase

Educational Approach

3. Sustainability phase

Long Term Improvement Planning

Supplier Assessment/Qualification
based on QCDDMP framework

Continuous Improvement
Framework/Process

Qualitative Assessment
- Standard Questionnaire
- Expert onsite assessment

Set Framework and Process to develop

continuous improvement

Quantitative assessment
- KPI based
- Benchmarking
Very Poor

Very Good

Quality

Quick Win Implementation

Baseline

Quality
Cost
Delivery

11

Process, System, and Org Re-engineering

Target

Design and Development

Management Systems
People

Measurements
Monitoring metrics to monitor the
improvement against the quantified
outcomes defined

About the authors

Avaneesh Gupta is a Senior Manager in
Accenture APAC. He is based in Hong
Kong and has vast experience in areas of
implementing lean practices in apparel
manufacturing, Process re-engineering,
Developing supply chain & sourcing
strategy, and Supplier development
programs. During last 8 years, he has
lead number of initiatives/re-engineering
projects to increase efficiency and drive
up bottom line savings/profits for
Fashion Retailers.
Email: avaneesh.gupta@accenture.com

Copyright 2011 Accenture

All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.

About Accenture
Accenture is a global management
consulting, technology services and
outsourcing company. Combining
unparalleled experience, comprehensive
capabilities across all industries and
business functions, and extensive
research on the world's most successful
companies, Accenture collaborates with
clients to help them become
high-performance businesses and
governments. As a Fortune Global 500
company, Accenture has more than
211,000 people worldwide serving
clients in over 120 countries. The
company generated net revenues of
US$21.6 billion for the fiscal year ended
Aug. 31, 2010.

Brett Margolis is a Senior Executive

leading the Sourcing & Procurement
Team as part of Accentures Greater
China Supply Chain Practice. Based in
Shanghai, Brett has over 13 years
experience developing and leading
multi-cultural teams to establish and
manage varied aspects of supply chain
operations in the Greater China region.
He is fluently bilingual in English and
Mandarin and has a deep understanding
of customer needs in relation to supply
chain performance.
Email: brett.margolis@accenture.com

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Today, it has more than 5,300 people
working in Greater China, throughout
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