In an ever more globalised world, the often turbulent relationship between supplier and customer has never been more important. Alex Leonards explores the barriers to achieving the perfect supplier-customer partnership and the new role of supplier relationship management.
Once a “does what it says on the tin” set-up, the relationship between customers and their suppliers is now increasingly complex. In turn, the role of supplier relationship management has changed dramatically in the past decade.
“Now in materials, there’s much more outsourcing going on,” says James Marland, vice president, SAP Ariba. “The security, receptionist, help desk, they don’t work for SAP, whereas ten years ago they all did.”
According to him, managing relationships with all the different tiers of suppliers is critical. Although they may no longer work for you, their role is still essential to the process, so the way you interact with them is important. “Now you’re managing those who used to work with you, and now don’t,” he adds.
And nowadays retailers are looking for more from their suppliers. No longer do they simply supply the goods. “There’s more innovation and sharing happening,” says Marland. “For example, the people who make controls for Xbox control, they understand how it works – and they are collaborating with Microsoft much more than a simple buyer seller relationship.”
The relationship between retailer and supplier now needs to be much more dynamic. And, according to Marland, this is done by working efficiency through IT, forecasts, and logistics problems. “Digital communication between the buyer and seller is important,” he says. “There used to be just a close relationship with their top tear suppliers, and they invested in EDI.”
Nowadays customers are looking for a significant relationship with all of their suppliers. Some companies might have 30 suppliers, while others could have 5,000.
“There’s been a big change – it used to be more about the elite,” he adds. “And there’s more talent, and access to talent, so it’s now much more diverse.
“20 years ago the talent might work for a big company, now they might work for a smaller, independent company.”
This brings up a new issue of scale, and begs the question, how do companies effectively connect all of these suppliers?
“Some of our clients work with over 40 suppliers at a single time, and creating a smooth and seamless workflow and communication channel with each can be intrinsically challenging – that’s a large number of contacts for you and your freight forwarder to keep track of,” says Jan van Casteren, vice president EMEA of Flexport, the freight forwarder.
On the other hand, when a specific supplier is fulfilling lots of different customers’ purchases orders, this can result in an unfair advantage regarding buying power, says van Casteren. “How important are you to that shipper? This can potentially causes delays to CRD, ETD and therefore ETA.”
Marland says it’s really about getting access to innovation, and new information about the market. “For example, the glass used in Apple phones is very strong,” says Marland. “That innovation came from a supplier, likewise so did capsules for Nespresso.”
There is real value in a supplier’s ability to bring about innovation; they’re tight on product design and know what they’re talking about when it comes to their own products. “It is important to manage the triangle between supplier, logistics provider and yourself as well,” adds van Casteren. “Delays at origin are often hard to track and can result from both cargo that is not ready as well as logistics delays.
“A good system allows you to track all milestones and identify the appropriate levers to improve the performance of your supply chain.”
Lance Mercereau, CMO at Rosslyn Analytics, says that one of the biggest differences in SRM systems seen in recent years is the customer’s requirement for more data – information on suppliers.
“In the past, procurement were comfortable managing suppliers with limited insight (compared to the amount of data-information that is available to decision-makers today),” says Mercereau. “With supply chains complex, and with the understanding that suppliers deliver both value and risks, having as much insight on suppliers is vital.
“Procurement expect to use advanced analytics to not only understand their suppliers, but to use the data to model scenarios if they change aspects of the supplier relationship.”
A big part of this thirst for more information about suppliers is to do with risk. With growing supply chains in a globalised world, keeping tabs on suppliers is crucial not just for the smooth running of a process, but also for the reputation of the business.
“Companies are getting in trouble if one of their subcontractors makes a mistake; it’s impacting the brand at the top, Samsung’s battery provider is one example,” says James Marland. “Tesco is another example with the horse meat scandal. The impact for reputation is high – consumers are unforgiving now, and old excuses don’t wash anymore.”
He says this is partly to do with the fact that consumers are becoming more informed and socially aware. Larger companies are now under the spotlight – and they’re taking more of an ethical approach.
Trust has also become an increasingly important part of a customer-supplier relationship.
“Supply chains where suppliers, buyers and other players are proactively sharing information, communicating forecasts and updating plans run with less cost and less overall drama than supply chains with low trust,” says Jan van Casteren. “Building trust means meeting commitments on both sides — for suppliers to deliver high-quality products and buyers to pay as promised on-time and it extends to trust with supply chain information and details for long term planning.”
So what barriers are there to achieving the perfect supplier-customer relationship?
“Supplier technology (or lack thereof) can be a major barrier to proper integration – for example, the impact of the GFC (Great Firewall of China) mandates some buyers to alter their existing internal technology in order to integrate with these regulated suppliers,” says Jan van Casteren, Flexport. “In a world with constantly evolving technology, this can hold buyers back from meeting the increasing demand for their product.
“Slow internet results in the inability to even upload documents – some people still use phones today to book shipments, in fact.”
He says that importers are always looking to save as much as possible on their purchase price. “But often can sacrifice quality and long term vendor relationships when pursuing the last penny in savings,” he adds. “When looking at total supply chain costs — inclusive of logistics performance, OTIF, and returns/warranty claims, Supplier Management programs return more than they cost to the consignee.”
Varying languages, cultures, time zones and geographies can also be a problem when it comes to supplier relationship management. “For example, China is the EU’s biggest source of imports, but factory points of contacts in China often have a different native language and are also operating several hours ahead of EU time zones,” says van Casteren.
Tavleen Kaur, research manager at The Smart Cube, says that the business frequently sees difficulties arise when there is a lack of alignment of objectives, or an incompatibility of goals.
“Suppliers can often be too focused on getting goods out and delivered, and doing it quickly and cheaply; this does not always align with a company’s brand values or customer service focus,” says Kaur. “Another common challenge is how to balance rationalising suppliers with getting the right specialist competencies on-board. For example food transport has a whole next level of specialism sectors, including frozen versus ambient temperature transport, and beverage transport, where wine delivery is another ball game altogether because any small change in temperature can affect the product.
“From the customer side, problems can arise when an over-emphasis on cost-cutting drives suppliers to skimp on quality, and the customer can suffer unintended negative consequences.”
Lance Mercereau, CMO at Rosslyn Analytics, says that managing any type of relationship can be fraught with difficulties. “For those managing supplier relationships, it’s critical to have the data about the suppliers – your own data, and not provided by the supplier,” says Mercereau. “Without basic visibility into suppliers such as who you’re responding money with, on what, and at what price, it’s impossible for retailers to manage suppliers.
“It’s also impossible to assess the costs and risks of your suppliers, which could negatively affect your company’s operations.
“Data analytics is a must-have for procurement teams.”
He says that it’s critical to know how to use the information to manage suppliers so the relationship is mutually beneficial to both parties. “Collaboration is central,” he says. “A challenge often encountered by procurement that seek to implement a strategic supplier relationship management program is internal change management – the requirement to set-up and communicate changes to how they plan to engage suppliers.
“This, then, also needs to be consistently communicated to suppliers so they, suppliers, know how to engage their customers – and the expectations on them, including adherence to key performance indicators.”
Customers are looking to generate more value from data by improving how they efficiently engage suppliers. “Organisations are increasingly looking at automating business processes and event-driven workflows that inform decision-makers when action must be taken such as if a supplier fails to deliver on time,” says Mercereau.
What customers want from the technology
Jan van Casteren, vice president EMEA of Flexport, says that his customers are mainly looking to close the gap between the purchase orders (POs) their ERP system generate and the actual shipments their freight forwarder is moving for them. “Especially when working with contract manufacturers, a lot of the PO communication is not automated or systems based,” he says. “In its most basic form, the buyer sends a PDF containing the PO to the factory.
“Closing that loop between raising a PO and actually knowing which goods are in transit allows a buyer to gain more control over their supply chain.”
But are customer’s looking for something different, to say, five or ten years ago?
“Absolutely,” says van Casteren. “The rise in the use of technology continues to drive innovation.
“Increasingly demanding users familiar with consumers want to use tools that are intuitive, fast and well designed.”
According to him, user interface and experience has become increasingly important, while MS DOS interfaces are no longer accepted.
“Customers don’t just want a record of details about the order but software that helps the users complete the work to move an order forward, not just a record of details about an order, “he says. “Local installation is no longer necessary – customers want tools that are cloud based and can be used on mobile. They also don’t want to use systems that are still reliant on faxes or snail mail – this is a huge turn off for customers.”
As well as this, systems need to be more outward looking. This means fostering collaboration, and acting as platforms, rather than being locally focused.
“ The should offer real-time visibility and status snapshots as a whole to allow for efficient uses of working capital,” adds van Casteren.
Tavleen Kaur, research manager at The Smart Cube, says that systems used to be solely focused on cost and tended to be very transactional. “Now companies are looking for more value creation, and for systems to be embedded into their service models – for example business service centres/integrated service centres, using integrated systems as well,” she says.
The role of EDI
Stefan Köhler of electronic data interchange (EDI) company Data Interchange, says that the technology enables companies to unlock great benefits and accurate, timely information across supply chains.
“Suppliers are facing increasingly complex demands to comply with different electronic trading requirements, which can create large costs,” says Köhler. “However, some SMEs have never used EDI technology and have instead relied on the labour-intensive and error-prone processes of faxing or emailing documents and re-keying orders into their systems.”
He says that these businesses fear the complexity of dealing with new protocol and technologies used by their customers, as it may result in big costs in fulfilling their disparate needs. But according to Köhler a big concern from cross-sector suppliers is demand forecast.
“Often, suppliers do not receive a forecast beyond the day’s firm orders, or the information that is received is not granular enough to be useful,” he says. “EDI allows demand data to be shared, streamlining business processes and cascading visibility down the supply chain tiers.
“There are tangible benefits to be realised, which include greater assurance of inventory and improved track and trace, leading to greater end-to-end efficiency and an overall reduction in working capital.”
He identifies improving cash flow for the supplier as one of the key functionalities of an effective supplier relationship management system.
“Automation and checks across the purchase-to-pay process supports better flow by eliminating errors and inconsistencies between purchase orders, advanced shipment notices (ASNs) and invoices/credit notes,” says Köhler. “Barriers to fast reconciliation of invoices are reduced and assurances of on-time payments can be made.”