A modern, automated approach to Supplier Management
In traditional Supplier Management, the focus was only on cost reduction. The buyer-supplier relationship did not extend beyond that. Today, it is recognised that Suppliers play an important role in the long-term success of an organization. With this recognition, they have come to be seen as partners in business no less important than the end customer. Correspondingly, the focus has shifted from just lowest cost/ inventory management to ‘Total Cost Ownership’. This includes minimizing total network cost, total network inventory, total risk profile and increasing speed of innovation. With this shift in focus, there is an emphasis on collaboration. Supplier management has come to be of strategic value as companies that manage their suppliers effectively gain a competitive advantage. Today, enhancing supplier management is given top priority when companies draft a roadmap for Financial Planning.
Supplier Management is not limited to managing a large supplier base. Apart from Supplier relationships and performance, Supplier management has extended to include the process of Supplier Onboarding and Risk Management. Companies have started to focus on Supplier Evaluation, Supplier Selection and Supplier Risk Management. This is a departure from the tradition where companies focused on supplier relations post signing a contract.
The underpinning of a good supplier management system is Supplier Data Management – here is where automation will play a critical role. Automation can enhance supplier collaboration as it makes communication easy. Supplier communication is a vital part of supplier management.
Why is there a need for automation?
When Supplier Information is managed manually, there is no central repository for Supplier information. This results in duplication and loss of supplier data. The evaluation of suppliers is incomplete without the necessary information. Lack of correct supplier information (Fraud, Risk, Compliance Data) has led companies to working with incompetent suppliers at times. Supplier information is also constantly changing, which makes it difficult for an organization to rely totally on existing information. With an automated system for Supplier Data Management, up-to-date information is available to all users. Automation will also ensure that supplier information is consistent across the board.
In manual systems of supplier management, there is no channel to record internal user feedback about the suppliers in terms of quality and performance. Take the case of Supplier Scorecards – buyers manually collect P.O, receipts and the data on defects and enter them into spreadsheets. Supplier scorecards are updated on a monthly basis. Updating the Scorecard frequently would take up time to gather information, time that buyers need to spend on their daily activities. That being the case, buyers do not use real-time information to track Supplier performance. On an automated system, scorecards can be updated on a daily basis prompting buyers to communicate areas of improvement with Suppliers.
Supplier Onboarding is another area which can benefit from automation. The process of Supplier onboarding requires suppliers to submit relevant information which is then reviewed and approved by multiple stakeholders like sourcing, supply chain and financial teams. This process can take several weeks. What if there was a common portal used by both buyers and suppliers on which suppliers can upload information? If this was possible, suppliers can also upload product catalogues on the portal. This reduces time for approvals, reduces manual work and also the onboarding time. In turn, the time to market can be faster for a particular project.
Supplier Evaluation – To effectively assess or monitor suppliers, spend and performance detail for every supplier must be available. For this, supplier information must be captured from all internal users. In reality, supplier information resides in multiple systems and tends to be inconsistent which makes a holistic view of a supplier difficult. With an automated system, supplier information can be pulled and aggregated from various systems. This will go a long way in accurate monitoring of supplier performance.
An illustrative example of an automated system for Supplier Management
The information that suppliers have to submit is pre-defined by the buyer organisation. Suppliers enter their information upfront. There are no multiple systems that Suppliers need to feed information into. When a supplier is approved, they are added to the central database. Once the supplier is active, the system starts tracking supplier performance against the contract. Real-time tracking ensures challenges (discrepancies in supply) are noticed upfront and suppliers are notified before it snowballs into a problem. Areas that need improvement are communicated pro-actively by various users in the buyer’s organization to the supplier directly.
The system tracks spend for each supplier by pulling data from various internal systems. Spend view is updated automatically as events occur. Detailed spend analysis is created for each supplier – In a single view, supplier history and performance across different categories and items is available. This enables an organization to perform spend analysis and supplier analysis. The organization further understands the best suppliers for each type of good, also if a certain good is sourced from multiple suppliers or fulfilled by a single supplier. The system gives information about fragmented purchases. All this information translates into cost effective buying decisions.
An automated Supplier Management system like the one described above will help the Sourcing team and the Supplier Management team in achieving their end objectives easily. With accurate supplier information, the sourcing team will be able to negotiate contracts better and also choose the right supplier based on organizational needs. The Supplier Management team will be able to actively manage their relationship with the suppliers and proactively monitor their performance.