Why Companies Need a Supplier Relationship Management Strategy

The business landscape is ever changing, numerous innovations have allowed companies to transcend borders and become global entities. While the opportunities are numerous so are the challenges; in this fiercely competitive global marketplace success requires companies to pay closer attention to supplier relations. Global leaders should retain suppliers with vested interest in the long-term success of the company. These partners should be willing to extend more value added services, flexibility and resources. To attain this level of trust with suppliers, companies should approach these relationships with the same care they use when approaching customers. A vigorous supplier relationship management (SRM) strategy can assist organizations in maximizing partnership value, minimize risk, and manage costs through the entire supplier relationship lifecycle.

When formulating a supplier relationship management strategy organizations must consider the following implications to be successful:

1. Become the Customer of Choice

In May, 2014 Raytheon gathered a group of its largest suppliers in Boston, MA to discuss the launch of the company’s Supplier Advisory Council. This advisory board is to serve as the first step towards a more comprehensive supplier policy and the building block for Raytheon’s new SRM strategy. As stated by Michel Shaughnessy, Vice President of Integrated Supply Chain for the company “In order to reach a level of earned preferential treatment, Raytheon has to build stronger bonds and greater trust into supplier relationships.”

By working closely with its suppliers to receive the best sales terms, fluctuating manufacturing capacity when needed and first access to the latest innovations, Raytheon secured its status as a leader in the defense systems market. The company also realized a 10% increase in stock price since the summer of 2014, in a highly competitive and regulated market.

2. Connect your supply chain

Supply chain concepts are generally understood in a linear pattern of consecutive planning in the form of plan-source-make-distribute-return/dispose. What happens when a company plans to bring a product to market and outsources all of the steps in between to suppliers that do not communicate? Take for example lithium batteries, which are intermediate parts destined to be incorporated into finished goods such as laptops, cameras or cell-phones. The transportation of lithium batteries is dangerous, as they overheat, which can cause significant damage. In electronics supply chains, transparency and visibility is key to ensuring that products get to market as promised. To do this, the production and transportation of all component parts must be closely monitored and coordinated.

3. Foster partnerships based on trust

In 2013 B2C e-commerce sales accounted for more than 1.2 trillion US dollars. Omni-channel shopping has given customers a wider selection of goods and a platform for price comparison. Because of this, businesses are finding it challenging to forecast demand and therefore they risk escalating inventory costs or stock outs. Organizations need more flexibility in their supply chains and should seek stronger partnerships with their suppliers, moving away from transactional relationships based on costs and delivery times, and focus more on long-term mutually beneficial relationships.

SRM software, much like a CRM system allows supply chain personnel to keep track of supplier interactions and address concerns early. This type of system can also help organizations understand when their suppliers are undergoing change or hardship, and offer them an opportunity to step in and help, or provide them with enough time to source from different suppliers.

4. Manage working capital

To establish and maintain leadership, organizations must innovate. Most often capital is tied up in paying suppliers with few funds invested in R&D. Some companies choose to extend accounts payable as long as possible to free up capital that can be invested into R&D and innovation. This requires strong supplier relations, built on trust as most times delaying payment can erode partnerships, affect terms of payment, and cause less willingness for collaboration. These strategies are even more beneficial in the retail space where suppliers consider special arrangements on payments in exchange for better shelf space and product visibility.

5. Set clear expectations and KPIs

Suppliers are not mind readers; their success relies on communicating with their customers, understanding their demand needs, and receiving honest feedback. Organizations that rely on hundreds, maybe thousands, of suppliers to fill demand find themselves reacting to supplier behavior rather than anticipating concerns and preparing ahead of time. A comprehensive supplier management strategy helps organizations arrange suppliers based on different tiers of importance and reliability.

Suppliers should be held accountable for their promises; all communications, formal and informal should be properly logged and followed up with. It is unwise to trust a supplier with more work or a better project, if they have repeatedly failed to meet deadlines in the past.

Organizations should keep detailed information on supplier communications, contracts, and improvement based on their internal key performance indicators. While all businesses appreciate a supplier’s ability to deliver high quality goods on time, organizations should also have individual characteristics they value from their suppliers. It is important that these characteristics are shared with suppliers and used to measure their ability to improve on these indicators.

6. Find opportunities and improve supply chain sustainability

Consumers are becoming increasingly more concerned with how their products are manufactured and sourced. According to The Nielsen Company: 55% of global online consumers in over 60 countries assert that they are willing to pay more for products and services provided by companies that are committed to positive social change and environmental protection. In the past we have seen numerous examples of global leaders fail consumer expectations. These organizations depend on a vast network of global suppliers to bring their products to market, but in the eyes of consumers it is their responsibility to ensure that their practices have minimal impact.

To meet the growing demands of customers, organizations must work closely with suppliers, conduct regular audits, and analyze findings. Managing supplier relationships strategically allows global companies to set standards and utilize existing assessments such as the Higg Index. To reach sustainability best practices, communication with suppliers must be collaborative and transparent with stated common goals and clear ability to measure efforts.

According to the Council for Supply Chain Management Professionals (CSCMP), supplier relationship management is a comprehensive approach to planning and managing an organization’s interactions with providers of goods and services. This practice is supported by a dynamic SRM strategy that retains information that can be used for analysis. The overall objective of SRM is to streamline transactions and manage communications. As supply chains become more diverse and exposed to various global risks, these practices help organizations become market leaders, mitigate risk, hold suppliers accountable and measure their supply chain footprint.

This blog appeared on the Cerasis Transportation Company Blog, visit them for more information on logistics, 3PL and supply chain management thought leadership. 

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Supply chain disruption – 3 lessons learned from past trends

Supply chain disruptions are business disruptions. There is no portion of the business that is isolated from interruptions upstream or downstream in the supply chain. As SCM become more strategic in business planning, we gain a deeper understanding of how challenges and opportunities in the supply chain can impact the overall performance of the business.

1. You are only as strong as your partners are!

Supply chain disruptions are rarely under the control of business operations or supply chain executives. Oftentimes we build partnerships to help us plan for the future and put our trust in companies to support our supply chain goals.

“Freight is the heart of supply chain management. Without the ability to quickly and effectively move merchandise around the globe, the business’ ability to succeed is limited”

Global companies agree to large ocean freight contracts to stabilize yearly transportation costs, and have a baseline budget for their expected TEU transportation.

Most SMBs will likely use an NVOCC for this service; this means that a 3rd party forwarder handles all the company’s documentation and freight arrangements door-to-door. Such a practice puts SMBs at a disadvantage which became very clear during the demise of Hanjin Shipping Line. Without their knowledge, many U.S. businesses found their merchandise on Hanjin vessels due to decisions made by their NVOCC. According to SeaIntel, at the time that Hanjin filed for bankruptcy protection, the company had 43 vessels in transit with 540,000 TEU of cargo on board.

Given the time of year, the merchandise on board of the ships was planned inventory to service the U.S. and other global consumers during the 2016 holiday season. One way in which larger businesses can protect themselves from such disruption is to take this decision in-house and assign a responsible party to manage their logistics network. In this case, companies can go directly to the shipping line and negotiate long term contracts at fixed rates. Companies should fully research the shipping lines they contract with and their terms of service. Generally, there is a high TEU requirement for competitive rates and this can often backfire if the logistics team chooses a poor partner.

2. Useful, accurate predictive analytics are key 

Data from the closing of 2016 shows that retailers had increased faith in consumer spending during the holiday season, and accordingly, increased inventory holdings in the last quarter. The National Retail Federation states that the year-end increase in import volume came as a surprise to many in the retail industry. The NFR raised its forecast to a 7% gain at major U.S. ports, from 3.2% in an earlier report, while November imports rose 11.2%, beating the prediction for a 3.6% year-over-year gain.

For manufacturers and wholesalers, customer trends often include paying close attention to the retail channel as well. Very aggressive sales and inventory management trends from Amazon, and other e-commerce retailers, created market disruptions driving many brick and mortar shops out of business. Their aggressive practices continue to take markets by surprise.

“Staying ahead of customer trend curve-balls requires alignment and communication”

At the end of 2015, days before Black Friday, Amazon reconstructed their inventory management strategy, significantly shortening their days of inventory on hand. This was a strategic move enabling the company to release cash at the end of the year, and force their vendors to enter a vendor-managed inventory system within a few weeks.

Amazon, Alibaba, and Ebay changed the way end consumers search for products and make purchases. Companies have to be prepared for last minute decision-making and must have flexibility in their supply chain to deal with spikes in demand or disruptions upstream.

Understanding shifting consumer behaviors is not a one-time effort, and must be ongoing. Successful organizations are proactive in learning about their customers’ needs and prepare to meet them ahead of time. It is imperative that this effort be shared across the organization to connect knowledge from the sales team to the supply chain.

3. Your supply chain must be flexible enough to adapt

For operations professionals, the constant goal is to continuously improve on previous processes and recognize tangible cost savings. In business, however, we cannot operate in silos. Our planning and preparation can only solve for a certain percentage of all the processes covered globally. To prepare for events such as the disruptions listed above, a company’s supply chain must be flexible and the managing team must have the tools to make last-minute well-informed decisions.  A flexible supply chain should be able to detect and respond to issues and opportunities in the short and long-term with the best choices for the business.

Understanding and preparing for operational challenges is crucial to growing a successful global brand. 

Strategic planning can make the difference between hitting the mark on profitability and customer service and failing to compete in the global marketplace. Understanding the sources of disruption in a company’s supply chain makes the operations team indispensable in drafting future growth and driving strategy to support this.

This article first appeared on TradeReady the Blog for International Trade Experts.

Catch Up!

blue-binary-code-jigsaw-puzzleThe supply chain discipline is young. As professionals in the field we are just now starting to learn from past mistakes and develop best practices. We are searching for innovative tools to help streamline processes, cut waste and increase visibility. As a group we are starting to have discussions around big data, analytics and the integration of machines that communicate and learn over time, as part of the greater internet of things (IoT).

The challenge? Software companies have not caught up with the needs of the industry.

Leading companies have been using integrated enterprise resource management (ERP) systems since the 1980s; more than 60% of all SMBs in the US are still not utilizing such platforms and their information storage is fragmented. Furthermore, those who are using these systems suffer from lack of communication between modules, and therefore remain stuck in decision making without real time information.

Organizations that have taken the leap to integrating their business management systems rarely have an easier time gaining visibility and real time information. Software companies develop solutions in silos, they do not collaborate with each other and create platforms that mimic the static vertical structures of organizations. These outdated structures fail to empower teams within organizations to make the most informed decisions. A recent study shows that there is a breakdown in communication between sales, operations and finance in more than 45% of all integrated business solutions.

There are no benefits to inventing working capital in hosted or cloud based solutions, and employee training on new platforms if he solutions are limited by design. The software and technology that will empower the supply chains of the future allows real time, seamless knowledge sharing across multiple departments and network participants. To maintain competitive advantage in a global economy where consumer’s desires are constantly changing companies must utilize consensus based collaborative forecasting and planning within their supply chain teams and networks.

To optimize supply chain decision making actors require a platform that supports collaborative and iterative simulation taking into account all constraints across the network and integration of PoS data for accurate forecasting.

ERP Benefits for SMB Supply Chains

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Excel spreadsheets, emails, FTP sites, Quickbooks, Salesforce, SharePoint, PDFs back to Excel. Does that sound like the operations process in your business or department?

The use of incongruent systems to store and manage information is the norm for more that 60% of small and medium size businesses (SMBs) in the United States. For these types of businesses an enterprise resource management system (ERP) implementation can appear cumbersome, costly, and stressful on the workforce. However, to maintain a competitive advantage in today’s volatile markets, organizations must invest in data management systems with robust analytics capabilities and improved supply chain visibility. Supply chains are exposed to a variety of risks; organizations must be able to anticipate, quantify, and prepare for the effects of foreign actors on their business. Utilizing integrated business solutions, leading with ERP software, is a business best practice and a necessity for continued successful operations in a global economy. ERP software organizations understand these challenges and numerous solutions exist to support a lean implementation project.

Prior to starting an ERP project companies must conduct a thorough analysis of the foreseen financial and human capital costs, and the software needs of the business. Upon deciding that an ERP system will support the future growth of the business SMBs aspiring to have a successful implementation must focus on the following items:

  1. Appoint an ERP Project Champion

Leadership is key to a successful implementation. Prior to launching an ERP project, organizations should look inward to their workforce and find an individual to champion the project. Having a project champion who is able to create a link between the organization and an ERP consultant can significantly streamline the project and reduce the overall implementation costs. This person is responsible for guiding a business through process transformation, recognizing errors, as well as understanding and mapping all business processes. They will work with internal and external teams on demos and testing, preparing the data prior to being loaded into the system, and training end users.

For most SMBs the project champion is also the project manager, who will hold all responsibility to ensure that implementation is on time and within budget. Project champions should have a good understanding of all business operations and the ability to work cross-functionally with different departments. This person will also become the spokesperson to the CEO and CFO on the project charter, budget, and team readiness. Most importantly the ERP project champion will be the in house post implementation support for the team. According to Panorama Consulting in their study Key Findings From 2015 ERP Reports: more than 52% of companies faced some sort of material operational disruption at the time of go-live, making this a critical role to implementation success.

  1. Find a Transparent ERP Partner

Organizations undergoing an ERP implementation are exposed to risk. A challenging part of an ERP implementation project is finding the right solution for the unique operations of the business. A system that appears to be one-size-fits-all approach is usually not the right way to go for a smaller business. Organizations must focus on their core business practices and find a partner that can support improvements in specific areas. There are numerous ERP solutions available on the market, according to research from Gartner “50% of businesses say that lack of industry standards makes it hard to compare solutions, while 39% feel that vendors are muddying the waters with lack of clarity about cost.” Change is demanding on the workforce and operational disruptions are inevitable, finding the right ERP partner can help leadership understand these risks ahead of time and prepare.

  1. Licensing & Hosting

The backbone of an ERP system is the data storage server that supports smooth operations. Aside from finding the right partner with the appropriate software, the IT department must make decisions on the type of licensing and hosting. ERP systems can be hosted on the cloud or hosted on site. The latter requires: a backend data management system, most common is SQL server, and enough computing power and space on a terminal server. Organizations will also need a strong firewall to protect the information and high quality internal network for client machines to reach the data server. On site hosting is burdensome for the business, as the initial capital investments in the infrastructure are very high and the maintenance costs outweigh the benefits.

Finally, businesses must decide if they require a full ERP cloud system, if their needs are more limited they can seek a software- as-a- service model (SaaS). Cloud and SaaS hosting differ slightly, in that the ERP provider generally hosts the SaaS model on their own infrastructure. This gives the vendor full control over the system, but also all responsibility for upgrades and maintenance. These types of systems also have a different cost structure to the business. The graphs below offer a representation of the various hosting models, showing that for both small and medium size businesses the hosted or cloud solution is the best financial choice.

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  1. Focus on Process Waste

ERP systems are a first step in helping organizations becomes leaner in their operations and supply chain management. During the first phase of the implementation, organizations undergo a vigorous business mapping and analysis process to help all those involved visualize the entire business operations. Lean Six Sigma principles encourage organizations to focus on operations improvements by analyzing processes, discovering where any of the 7 wastes are manifested. To ensure that the project is carried out correctly those involved must agree on key performance indicators, and measure and analyze this data. This is precisely the role of an ERP in small or medium sized business.

For example, if a SMB’s main concern is that order-to-cash time is taking on average 30 days longer than the expected 60 days, the implementation of an ERP system will help streamline the information exchange between internal departments and shorten the time by 50%. Some of the most significant wastes organizations face without a proper ERP system can be tied to extra processing, inventory and motion. These are costly, with direct effects to a company’s financial statements.

  1. Reporting

ERP systems offer new and more complex data analytics capabilities, compared to fragmented systems. While creating the report can sometimes be timely, once the structure exists, running these reports can take a few seconds and offer new visibility into the company’s operations, sales, supply chain and financials. The best way to capitalize on these capabilities is to work closely with each department and understand what information would be most valuable to them, and how this information can improve their processes. This is another place where the project champion holds a unique and important role. This person should be communicating with the department managers, listening to their concerns and delivering the message to the ERP partner, who will most likely produce all of the initial reports. When this is done correctly companies see immediate results in better S&OP planning, customer invoicing, less accounts payable mistakes resulting in late fines and increased customer satisfaction.

Enterprise resource management systems are beneficial to small and medium sized businesses, by streamlining operational and supply chain processes. They offer a centralized location for sales, purchasing, inventory, customer information, AR, AP and GL data, and strong analytics capabilities so SMBs can stay competitive and lean. When choosing an ERP system it is important to understand the core of the business and find partners whose strengths are aligned with the operations. Ask the right questions, have the long-term business goals in mind and assemble the right team.