Jim D’Addario, Sr. Director of Product Marketing SCM Cloud
Supply Chains are rapidly evolving from staid, linear sequences of discrete functions into dynamic, interconnected networks that are better able to accommodate rapidly changing demand patterns and more nimble business operating models. The functions of planning, manufacturing, inventory management, procurement and logistics are shifting from an emphasis on optimizing each discrete function to a more holistic approach with each area collectivity optimizing the end-to-end supply chain to achieve corporate objectives and maximize customer satisfaction. A holistic focus is enabled by innovative modern technologies such as cloud computing with its built-in flexibility, connectivity, embedded analytics and support for mobile devices that allows companies to adapt quickly and achieve competitive advantage through better serving customers, exploring new revenue sources and gaining access to new markets.
However, considerations of innovative and more adaptable supply chains need to consider another key factor: the company’s suppliers themselves. Suppliers are critical to a company’s ability to satisfy customer demand, supply chain execution as well as overall business performance and profitability. Accordingly, they need to be managed in a disciplined and systematic way to ensure reliable performance and minimize risk. Selecting suppliers and managing supplier relationships over their lifecycle is the responsibility of the Procurement organization who must themselves transform from their traditional focus on the procure-to-pay process and cost savings, to a more strategic role of qualifying, selecting and managing suppliers.
According to Deloitte’s 2017 Global CPO Survey eighty-seven percent of organizations faced a disruptive incident with suppliers in the last two to three years and supplier risk is the second highest priority for CPOs (second only to their traditional role of driving cost savings). According to the survey, procurement risk is at its highest level ever, increasing to 50 percent over the results reported in the prior year. Supplier performance or more accurately, failure to perform can severely impact a company’s financial results and damage its reputation. Without a comprehensive supplier management strategy, the supply chain operation and the business is at significant risk. The is particularly the case with companies with large supplier bases, complex supply chain operations and a large amount of direct spend. With so many companies and their supply chains depending on suppliers meeting their obligations for on time delivery, quality and conformance to contractual terms, supplier risk management takes on greater role. Chief Procurement Officers who cling to their more familiar transactional role of generating cost savings through the disciplined enforcement of internal purchasing policies and negotiating better prices with suppliers need to transform. As supply chains grow in complexity and geographic scope, the supplier and supply management role takes on much greater importance.
For many procurement organizations, supplier and supply management practices are inconsistent, fragmented and critical supplier information is often siloed, incomplete, lacking in accuracy and poorly leveraged across key areas such as sourcing, contracting and supplier onboarding. Inaccurate information on supplier capabilities, qualifications and performance leaves companies exposed to risks that could result in business disruption, missed deliveries, compliance issues and damage to the company’s reputation, all of which can have negative financial consequences. Moreover, as companies rapidly expand into new markets and new geographies, they need to effectively qualify their suppliers as vital business partners to ensure reliable access to critical materials, on time deliveries and enable nimble transitions into new business opportunities.
The changing dynamics of global markets and extended supply chains place a higher premium on supplier management requiring Procurement to lead the business by diligently assessing available suppliers, carefully selecting them to participate in bidding processes, awarding business, negotiating enforceable contracts and rapidly onboarding them so they are ready to help drive business results. Inherent in their more strategic role is a broadening of capabilities such as:
- Protecting the business from risk and decreasing supplier management costs through rationalizing suppliers across categories, regions and performance.
- Being the focal point for managing supplier risk by ensuring that all suppliers are thoroughly qualified so the company can safely source from and depend on their preferred suppliers as a critical component of their extended supply chains.
- Proactively execute and manage supplier contracts over their lifecycle including identifying contracts that are nearing expiration or need to be revised with new terms and conditions to ensure business continuity and minimize risk exposure.
Leveraging modern cloud technology to modernize supplier management elevates the procurement organization into the role of strategic business partner and expands their influence throughout the organization. In order to fulfill this transformative role, procurement must streamline and automate transactional processes in the source-to-settle cycle to enable procurement professionals to focus on their more strategic and mission-critical role of supplier management. The end-to-end supply chain demands that the discrete functions of manufacturing, production, logistics, inventory management and procurement all operate in concert with the goal of serving the company’s customers and optimizing profits. Procurement plays a key role in end-to-end supply chains by ensuring suppliers do their part to keep the business operating at its best.