Organisations and procurement departments spend a great deal of time, money and expertise on vendor selection and management, often with mixed results. In one of several projects with The London School of Economics, The Piccadilly Group have developed a new model for selecting and engaging suppliers which improves the efficiency of buyer-vendor relationships.
Where traditional models fail
Many factors feature in the supplier selection process and contribute to the outcome of projects and ultimately the health and longevity of the buyer-vendor alliance. A wide range of methods and models have been developed and adapted in recent years to tackle the challenges that arise. Traditionally, these focus on attributes such as business need, vendor health, vendor capability, requirements suitability, price, technology and vendor track record. All are key factors but fail to consider one key element which forms the basis of all relationships and possibly the most important of all; ‘trust’.
Trust measurement and prediction
Together with The London School of Economics, The Piccadilly Group, have engaged in a new and challenging research area to investigate and determine an effective and practical way to measure and predict trust levels between buyer and vendor. Although the subject of trust has been widely discussed, an effective method to measure and predict trust is yet to be developed.
For our project, we designed and built a trustworthiness formula to act as the basis of the measurement model. Using the Data Envelopment Analysis method (DEA), a nonparametric method for estimation and measurement, this enabled us to measure trust and evaluate a vendor's trustworthiness. A trust metric can now be added to traditional vendor selection methods. Vendor trustworthiness during the contract period itself is as equally important, and using dynamic programming(dynamic programming is a method for solving complex problems by breaking them down into simpler sub-problems), we developed a prediction model to enable the buyer to better understand and affect vendor behaviours and thus promote buyer benefits over an extended period.
Case studies and practical application
During the project, case studies for both models were undertaken to demonstrate practical application, with the results indicating that trust metrics lead to a much deeper understanding of vendor and buyer drivers and behaviors. They ensure consideration of several important factors often ignored in traditional methods, such as risk, reputation and even financial performance.
We are about to engage in real-life vendor selection scenarios with several companies. If you think your organisation would benefit from trust metrics, please contact us to find out more.
Market survey and benchmark
We are also seeking industry leaders’ input into a market survey and benchmark to increase our understanding of drivers behind vendor and client trust. The output from this will be a detailed benchmarking report that will be fed back to participants and outlining trends, key issues and drivers which will provide valuable insight. Please contact us if you would like to participate. September 2011