How often do you Prove a supplier's Importance

The 6-step POI Framework

POI Evaluation Procedure

When assessing your supplier’s importance, ask and answer these 6 questions:

1.????? How important are they to YOUR Business?

2.????? What is their contribution to YOUR objectives?

3.????? What’ll it cost you to switch away from them?

4.????? Risk Assess the situation.

5.????? Measure how important they actually are.

6.????? Ready now to make an Informed Decision

Last week, I contributed to a LinkedIn discussion under the heading:

"Your vendor's financial stability is uncertain. How will you navigate this challenging situation?"

One of the steps I recommended was:

Quantify Their Value – Determine the specific supplier’s importance to your business. If a Proof of Importance (POI) justifies their role, evaluate whether supporting them aligns with your goals.

I’ve been asked how to complete a POI evaluation, so I’m happy to share the procedure I use for clients below.

First off, what’s a POI?

A Proof of Importance (POI) evaluation is a systematic process to assess the value of a supplier, partner, or stakeholder. It quantifies how critical their role is to your operations and informs decisions in challenging scenarios, such as financial instability or performance concerns.

1. How important are they to Your Business

• Key Deliverables: What goods or services do they provide?
• Impact Scope: Which departments, processes, or customers rely on them? Example: Do they supply a unique product crucial to your operations, or could another provider easily fill the gap?

2. What is their contribution to YOUR objectives

• Revenue Impact: How much of your revenue is tied to their goods or services?
• Operational Stability: What would be the effect of their absence?
• Competitive Advantage: Do they help you outperform some of your competitors (through the likes of being cheaper than others or they give you a quality advantage)? Key Question: Would losing this supplier immediately harm your ability to meet YOUR own objectives?

3. What’ll it cost you to switch away from them?

• Financial Costs: How expensive would it be to switch to an alternative?
• Time Requirements: How long would it take to bring on a new supplier?
• Relationship Impact: Could switching affect your own customer satisfaction?

4. Risk Assessment it

• Dependency Risk: How reliant are you on this supplier? Quantify the risk and state is as a percentage.
• Contingency Options: Are there backup suppliers available?
• Supplier Risk: Engage directly with them to uncover the facts about their stability.

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5. How important are they Score the supplier (e.g., 1-5 or high/medium/low) across four areas:

1. Criticality to Operations
2. Revenue Contribution
3. Switching Feasibility
4. Dependency Risk

Aggregate the scores to determine their POI level:

• High Importance: Essential to operations; irreplaceable in the short term.
• Moderate Importance: Manageable impact; substitutes exist.
• Low Importance: Minimal impact; easily replaceable.

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6. Make an Informed Decision

• High Importance: Consider supporting the supplier if their recovery aligns with your goals.
• Moderate/Low Importance: Focus on securing alternatives to reduce your dependency on them.

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Final Thoughts

Please don’t wait until a supplier is struggling to complete a POI evaluation.

A regular assessment ensures objective decisions and clarity on which suppliers deserve attention or intervention. By doing so, you safeguard your business from avoidable risks.

Lastly, don't leave it off cos your too busy: if you want an objective POI completed for one of your suppliers please feel free to give me a call, we've been helping out "too busy" managers for years.

Are you willing to share how you assess the importance of your suppliers? I'd appreciate a debate!