Managing relationships with suppliers is one of the most challenging parts of the procurement and supply chain management process. So what does it take to succeed, and can technology help? Malory Davies reports.
Getting the best out of suppliers is critical to the efficient operations of any supply chain, so it is not surprising that interest in the whole issue of supplier relationship management. “Whether it’s the Apple Corporation releasing supplier reports to increase transparency in their supply chains or Tesco and their supplier conferences, most organisations and businesses know that suppliers are the cog in the wheels of business,” says Duncan Brock, group director at the Chartered Institute of Procurement and Supply. And there are measurable gains to be found. Tony Harris, vice president & general manager, supplier management solutions at SAP Ariba, points out that with the right supplier relationship management system in place, “procurement can reduce the cost and time involved in supplier discovery and assessment – which can account for up to half of the sourcing cycle. “And perhaps more important, they can gain an enhanced view of their exposure to risk across the supply chain by tracking financial, operational and sustainability considerations to prevent disruptions to their business.” But, says Alex Hersham, chief executive at Zencargo: “Supply chains should look beyond measuring the value of these systems through improved operational efficiency and understand the full business benefit. On a simple level SRMs directly improve measurable operational KPIs – including fewer and shorter production delays, reduced time spent managing each production order and less sailings missed. But the true benefit is much greater as these operational benefits will shave time off of lead times, helping to boost sales and ultimately growing the bottom line,” says Hersham. Alan Gunner, business development director at Adjuno argues that it is those companies who have successfully secured a reliable and supportive supplier base who will become the “customer of choice”. Furthermore, efficiently implementing this strategy will enable businesses to effectively see a reduction in costs and time, a more secure and accurate database, and a credible relationship with the end customer.” The starting point of course is to decide what needs to be managed – and that is not a straightforward as might be thought. SAP Ariba’s Toby Harris points out in the old days, supplier relationship management largely meant buyers negotiating with suppliers on price. But things are different today. “While managing costs is still a top priority for procurement, managing risk and driving ethical, sustainable behaviour across the supply chain are becoming key as well. And this requires a more connected, collaborative approach.” Alex Saric, chief marketing officer at Ivalua, takes up the point: “The key factor is moving beyond conversations purely about cost. While it’s important, cost shouldn’t be the sole basis of your relationship with suppliers. After all, if price is the only thing ever discussed, it’s not possible to talk about how to work together and innovate on solutions to challenging problems that the supplier may be able to help you solve.” Alex Hersham, chief executive at Zencargo, argues that there are several “hygiene” factors that will establish the right foundations for any relationship. “Being clear and concise with your communication is critical to ensuring that there are no misunderstandings. Detailing all aspects of your working contracts will reduce the possibility for confusion or disagreements over service. Finally, taking the time to get to know your supplier will help to form deeper personal bonds that can help you out in tricky situations. It is vital to combine this approach with technology which helps you to manage your workflow and increase your efficiency,” says Hersham. Perhaps surprisingly, Tavleen Kaur, research manager at The Smart Cube, says: “We commonly see companies not realising the value of SLAs and KPIs – setting effective targets and monitoring against delivery is more important than ever. We advise clients to incorporate SRM guidelines into the procurement policy, especially around key aspects like supplier segmentation, supplier assessment and supplier auditing. Kaur also points out that while there is no doubt that knowing whether suppliers are meeting agreed SLAs and KPIs is important, “we are seeing increasing interest in moving the dial from Supplier ‘Management’ to Supplier ‘Engagement’. This implies a broader value proposition, of which innovation is a huge part but the value can come from a wide range of activities if you and your strategic suppliers truly engage and collaborate,” says Kaur. But, warns Ewan Friend, managing director of Data Interchange: “Operationally, efficiency is often thwarted at the touch point between companies. EDI offers the technology and processes to unlock benefits to organisations and beyond by cascading accurate, timely information across the supply chain. Currently, suppliers are facing increasingly complex demands to comply with different electronic trading requirements, which can create large costs. “Some SMEs have never used EDI technology and have instead relied on the labour-intensive and error-prone process of faxing or e-mailing documents and re-keying orders into their systems. They fear the complexity involved in grappling with the various protocols and technologies used by their key customers may present large costs in fulfilling their differing needs,” says Friend. CIPS’ Duncan Brock highlights the fact that procurement professionals are adept at facts and figures, contract and supply chain management, but good relationship management needs the softer basket of skills that are not always obvious in procurement. “The most skilled communicators are great listeners and not the loudest voice in the room – as well as being able to articulate their own ideas. “Clear thinking, respect and relevancy when speaking are key skills as well as backing statements up with facts.” Assertiveness is also important, he says. “In difficult times or when a decision needs to be made, a strong approach and a desire for both parties to be winners is key.” And of course negotiating skills are vital. “The best negotiators get what they want while being fair and supportive of the other side.” Technology is playing an increasingly important role in the process. Tony Harris of SAP Ariba, says: “Just like social networks have changed the way consumers shop, share and consume, business networks have transformed the way buyers and sellers interact by enabling them to connect and collaborate across the entire source-to-settle process in totally new ways. “ So beyond just negotiating on price, buyers today can tap into diverse suppliers who can help them rethink the way products are designed and developed. And sellers can leverage things like dynamic discounting technologies and supply chain finance programs to access the resources they need to scale and adequately support their customers’ needs.” Brock says e-sourcing tools have improved the way procurement works with suppliers and have been around for a while, and which supports communication with suppliers. Analytics help to track savings and performance and increased access to data means that risk management has also improved. And Ivalua’s Alex Saric points out: “The best solutions empower procurement and supply chain leaders with complete visibility into supplier risk and performance and enable scalable collaboration with suppliers to drive greater value and deepen relationships.” Communication applications like Skype and Whatsapp are common tools for most supply chain teams looking to engage with their suppliers, says Hersham. However, these can become unwieldy when trying to manage multiple suppliers and purchase orders as information is lost across platforms and buried in deep threads. “Zencargo have built a supplier management feature to help larger companies manage their global procurement strategy. This has helped the fastest growing European businesses save time and increase business efficiency. Our system automates supplier communication making it easy to retrieve production status updates and track vital information.” Tavleen Kaur says: “The critical thing for organisations is to have a standard platform to collate information and data, and enable visualisation across all suppliers. This does not have to be a dedicated SRM software – we use the Tableau platform for this function across many of our clients. “The other critical point to remember is that technology is only an enabler for better decision making. Too often it is seen as a silver bullet – the complete answer to a huge range of supplier problems. Yet the most frequently cited barriers to SRM are poor internal data and systems, and teams lacking the time and resources to implement the strategy,” says Kaur. Pat Barlow, manager at Logistics Reply, argues that creating a Supplier Portal is one approach – allowing all inbound product to be compliant and instantly visible upon despatch from every supplier location. “This leads to improved visibility of stock movements and greater accuracy within the supply chain and improved availability for customers. And avoids costly investment from suppliers requiring to install, change or upgrade their MRP/ERP/WMS systems.” A good system provides a single point that all suppliers can quickly and easily connect to, says Tony Harris of SAP Ariba. “This can be used to manage everything from finding the right partners and collaborating with them on everything from sourcing and orders through invoice and payment to identifying potential supply chain risks, such as forced labour or unfair wages, and mitigating them before they cause damage. “The system should be two-sided, providing benefits for both buyers and sellers. Buyers can manage the entire procurement process, while controlling spending, finding new sources of savings and building a healthy supply chain. “And suppliers can connect with profitable customers and efficiently scale existing relationships—simplifying sales cycles and improving cash control along the way. It should also be network-driven so that users can benefit from the insights and intelligence of entire communities to achieve their objectives. Leveraging the hundreds of billions of dollars of financial transactions and transactional data along with relationship history that resides in business networks, buyers and sellers can, for instance, make more informed decisions by detecting changes in buying patterns or pricing trends and provide confidence and qualifying information on a potential – yet unfamiliar – trading partner. “And, when combined with community-generated ratings and content, such as performance ratings where buyers rate suppliers and suppliers rate buyers, they can glean not only real-time insights, but also recommended strategies for moving their businesses forward. Others in the community can use this information to help determine who to do business with or to help detect risk in their supply chain,” says Harris. Alex Saric highlights the value of smart solutions that can also bring actionable insights to user fingertips. “AI applications can help quickly find information through digital assistants and even identify issues or predict risk. “Finally, smart solutions not only provide insights but make them easily actionable. For example, they can identify which suppliers are not compliant with GDPR and then allow leaders to launch improvement plans and maintain visibility into corrective actions taken, with full transparency and auditability of efforts to ensure compliance. Such project management capabilities scale supplier management across the full supply base,” says Saric. Ewan Friend highlights the value of EDI to transmit critical documents accurately (ASNs, purchase orders and invoices), saying this acts as an enabler to unlocking benefit. “Having a complete, cohesive and accurate view of activity within the supply chain is a key benefit of an SRM approach.” The Smart Cube’s Tavleen Kaur picks out a number of functions, notably a consolidated view, effective benchmarking of suppliers; structuring the supply base; supplier assessment; supplier auditing; and supplier integration. “The single most useful measure, says Kaur, is: ‘Do you have a single view of your supplier landscape?’ You should have complete visibility across your defined metrics, which enables you to benchmark, measure and formulate future supplier strategies. A commonly undervalued measurement is around resource utilisation, which should decline on the supplier side: buyers spending less time with suppliers alongside maintaining delivery quality is a good sign of an effective supplier relationship strategy,” says Kaur. Ultimately, says Saric: “The benefits of an effective supplier management system are seen in reduced risk, improved performance, greater innovation and ultimately higher revenues. These are naturally much more difficult to measure than traditional cost reduction performance, but there are ways to do so. With innovation, an effective measure is the number of new products launched with supplier-driven innovations. The revenue impact of these products can be measured as well to gauge both quantity and quality. Supplier performance can be measured in a variety of ways depending on the particular focus. This can include reduction in lead times, overall supplier performance scores or other metrics. The key is to align on what is important to the organisation, set relevant targets and track progress.” Ewan Friend highlights overall business performance improvement. “Measures may include: Reduction in factory line stops or customer outages, reduction in premium freight, reduction in crisis management meetings or events, more supply chain throughput at a lower overall cost, improvements in the performance measures of all supply chain partners and assurance of supply for future generations. The EDI element enables and supports the operational improvements, allowing for a leaner business and a more agile operating model.” Looking to the future, Duncan Brock sees potential in predictive analytics. “Procurement teams have only begun to realise the benefits of the data they have at their disposal. Many teams are still relying on historical data which makes decisions more difficult given the speed of change in business, but the developments in big data means procurement has the ability to move towards more predictive analysis and forecasting. “Many businesses are now investing heavily in the management of big data and new tools coming on to the market. More knowledge and capability in data management means better relationships with suppliers because procurement teams should understand market trends better,” says Brock.
This feature first appeared in the August issue of Logistics Manager.