Supplier Performance Evaluations: A Look into the Future
As a practitioner of vendor evaluations for over 20 years, I can attest to the value of the program and its impact on vendor relationships, costs, revenue, share and profitability. HARDI has invested a great deal of time, talent and capital into developing a foundation for the practice and its use in the industry. Sadly, the HVAC industry is well behind other industries in the use and practice of supplier performance applications. In light of that fact, I thought it appropriate to gain an in-depth perspective from a young executive in the process of putting the practice into play. That perspective may give us some insight into what the future holds, and how this practice may gain momentum in our industry.
Allie Lehmann is vice president of operations at Standard Supply headquartered in Dallas. She has an undergraduate degree from Penn State in organizational leadership and is pursuing a Masters of industrial distribution from Texas A&M. Allie has 14 years of experience in industrial distribution across several industries.
Allie, I understand that vendor evaluation was the subject of a special project for your work at A&M. Why did you choose this practice?
I completed a project on vendor evaluations as part of my graduate degree program. The course focused on industrial distributor networks and specifically looked at network challenges. One of the common things to look at when optimizing profitability is to do so through customer stratification. While that is a very valuable practice and one I agree with implementing, the course challenged our thinking to look at the supply chain and optimization efforts both up and downstream. The result was thinking “backwards” about stratification efforts, not just as it relates to the customer but how those principles could be applied to a vendor to optimize profitability. When it came time to do the project research, the HARDI studies became the platform for our scorecard project. Not only was it a solid template, it also presented consistent language and metrics germane to our industry. There is a lot of value in that.
You had mentioned that the practice is commonly used in the electrical industry. What do you think its future is in the HVAC industry?
There is still a lot of distrust that exists between distributors and manufacturers, especially as it pertains to data. I think as the trend in the HVAC industry to become more data-driven expands, so will some of the transparency between vendors and distributor data, which will strengthen the planning sessions that exist. We have a ton of opportunity in our industry with respect to similar trades that are ahead in their business processes, like electrical. They afford us almost a crystal ball in terms of the direction our industry is heading and how we can best prepare.
What benefits do you believe will result from the full implementation of the practice at Standard Supply?
In addition to improving our overall inventory position, I think the real gain will come from better vendor partnerships. Using tools like scorecards to talk a common language and focus on continued collective improvement can only make us have more meaningful conversations that increase our collective profitability. That is a strong benefit not just for Standard Supply but for our partners that are part of the Vendor Scorecard process.
How do you believe the practice will be received by the vendor community? What will it do regarding the overall relationships between Standard Supply and its vendors? What impact will it have on the “brand” of Standard’s operation/procurement group in the eyes of your suppliers?
I think if it’s a two-sided conversation between distributors and vendors, it will have a very positive impact. We need to be having meaningful data-driven conversations where we both focus on areas of improvement and helping one another improve net profits. When you have a customer that is willing to have that level of honest conversation with you to help both sides reach a collective goal, it can only increase the importance of that customer to the vendor and their business growth goals. At that point, we become true market partners. If I were a manufacturer, those would be the distributors I would want to go to battle with.
What will the vendors learn about Standard Supply that they do not already know?
I think vendors may be surprised to know just how data-driven some companies like Standard Supply really are. A lot of the optimization principles that are commonplace in manufacturing can be embraced and tweaked for distribution strategies. Distributors today are more savvy then they were even 20 years ago because of the access to “big data” that we have within our ERP systems.
Will this process enable the operations/procurement group to have a greater impact on achieving corporate goals and objectives? How will the initiative help the sales group?
Absolutely. Our inventory asset is probably the second largest item on the balance sheet second to A/R. Better management of inventory through better vendor relationships can have a huge impact on the company’s performance. As for helping the sales group, when vendors are aligned closely with a distributor in a market, they tend to work more closely with them on other sales-related activities, especially as it relates to gaining new market share.
Will this afford you the ability to network more effectively with other firms that have similar programs in play?
Standard Supply is part of Affiliated Distributors, and one of the best aspects of our membership is our networking groups. Vendor evaluations would enable us to talk with some of our network members about vendor performance using common language, which is incredibly valuable for any distributor.