Why Companies Need a Supplier Relationship Management Strategy

Screen Shot 2015-08-10 at 16.43.12The 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. Screen Shot 2015-08-10 at 16.43.40Find 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 first appeared on the Cerasis Transportation Company Blog visit them for more information on logistics, 3PL and supply chain management thought leadership.

3 Big Data Insights for the Savy Organization

Recently the World Economic Forum weighed in on the big data conversation. You can read the article here and see below 3 insights that I consider very important and relevant:

1. Big data management is tricky, and companies must understand what dupes of data they require and the supporting structures they need to reach their data goals.

2. Insights and analysis should serve as plan of action for reaching total quality management. 

3. Full buy in from C suite is vital for the success of big data endeavor because it is a huge change for staff and often requires costly infrastructure.

In conclusion: tomorrow’s leaders will have a robust big data strategy that helps them connect with their customers to deliver high quality goods and services. This strategy will be supported by an analysis powerhouse back end able to manage both structured and unstructured data sources that meet the company’s growth goals.

Building Sustainable Supply Chains: Procurement

Screen Shot 2015-07-30 at 11.52.42Imagine the complex the life-cycle of a simple white t-shirt and the impact it has on the communities along its supply chain. From the farmers growing the cotton, the factory workers weaving the fabric, cutting and sowing of the end product, along with the transportation of materials at various stages , these processes have tremendous impact on the environment and the finite natural resources we depend on. Organizations have numerous opportunities to improve sustainable practices along the supply chain from product design, to procurement, logistics, sales and reverse logistics.

The apparel industry offers multiple examples of opportunities to improve overall practices, lower impact and grow as a market leader. Companies such as Reformation and Levi Strauss, among few, have proven that being sustainable is a good business and profit model. The apparel industry has not changed its procurement and manufacturing practices for decades, as exemplified by the deadly disaster at Triangle Shirtwaist Factory in New York in 1911, and more recently we’ve seen similar stories happening in developing nations . Buyers constantly push for lower costs, which continues to shift manufacturing to developing nations. Too often we hear the horror stories of factories burning down in Bangladesh or Pakistan, and the number of avoidable deaths.

Procurement strategies lie at the heart of international supply chains and offer an array of opportunities to improve on sustainability practices while creating value. Sustainable procurement practices are directly linked to stable supplier relations, efficiency, transparency and accountability. Companies that implement innovative sustainable procurement strategies see the immediate top and bottom line benefits; improved quality of goods and services procured, and increased trust. Below are 3 top procurement strategies that international organizations can depend on to build a more sustainable supply chain:

  1. Engage your suppliers & collaborate

Meet your suppliers, visit their suppliers and conduct performance assessments to identify high-risk and non-compliant suppliers. Ask to meet the producers at the bottom of the pyramid and work closely to ensure that value is being built throughout the supply chain. Organizations should want to know the total cost and impact of sold goods, by working closely with downstream supplies they can better measure these indicators.

Rapidly changing weather patterns, like the current El Nino , significantly affect international supply chains, particularly for food and apparel. Working closely with suppliers allows companies to formulate strategies to protect their production during these times. Furthermore, having the information of all that is required to deliver the end product also allows organizations to measure and mitigate their impact on local societies and the environment.

  1. Partner with NGOs & be creative

The United Nations Capital Development Fund (UNCDF) supports programs that aim at reducing poverty through inclusive and equitable local development. A huge pillar of this outreach is the program’s ability to bridge the gap between the private and public sectors. The program works closely with international organizations to develop stable procurement programs in indigenous localities from where they can source goods directly from small producers. Organizations such as Oxfam or The Fairtrade Foundation work closely with members of developing communities around the world, understand how to position and operate in those environments, and can prove to be valuable partners when diversifying international supply chains. Companies should also take advantage of the data these NGOs have gathered from various locations to help guide them when forming supplier partnerships. Partnerships can stretch across the globe and aim to reach multiple communities in need, or stay local and manage the impact of programs in their own communities.

Some organizations have already seen the proven benefits from similar partnerships. Reformation is anScreen Shot 2015-07-29 at 15.52.48 apparel company headquartered in Los Angeles, California. The company proudly boasts on its website “We make killer clothes that don’t kill the environment” and they have the facility and data to back that up. But efforts do not stop there, they have recently launched a program through which they actually help people recycle their old, used and unwanted clothes by offering a free shipping service to their warehouse for such items. The items received are sorted to determine if they can be reused or recycled. If they determine that the materials are useful than that becomes part of their production.

  1. Take a 360 view of supply chain operations & use data

New data and integrated business management systems can help companies have better transparency in their supply chains. Competitive advantage lies in a company’s ability to break out of silo management styles and bring members from across the organization to supply chain task teams. For years marketing managers have made great use of customer related data, from structured sources such as POS systems, and other types of transactional information. Today, marketing departments are at the forefront of big-data management by blending traditional structured data with unstructured sources such as social media, email or videos.

Data use in supply chain is still at an infant stage, managers are still only making use of transactional data, often looking at inventory, order fulfillment and forecasted demand. Seldom do companies formulate a broad data strategy where all departments are utilizing the same knowledge to ensure that their goals are aligned with those of the overall organization.

Why is this important?

  1. The price of raw materials is volatile due to environmental degradation and increased competition. This volatility creates uncertainty in supply chains, which can have significant cost implications on inventory and operations.
  2. Studies show that 60% of consumers a company’s environmental record, sourcing and employment policies affect their purchasing decision. Building sustainable practices into supply chain strategy can help strengthen stakeholder relations.
  3. Supply chains are exposed to multiple risks and stronger supplier relations help companies develop strategies to mitigate risk and make forecasting projections that will meet changing customer demand.

Supply Chain or Value Chain?

Michael Porter first addressed the notion of value chains in his famous business writing Competitive Strategy. He explains the concept as a set of business processes operating within a firm that together provide increased value to customers. This value building set of process operations incorporates information and activities connecting a company’s supply side with its demand side, and thus covering raw materials, inbound logistics, production process, marketing, sales and all other aspect of a diverse supply chain. Following this explanation, companies whose values lie in corporate social responsibility and sustainable operations should think of their supply chain as a value building mechanism. To do this organizations must shift focus from the customer centrist approach to a more holistic one that incorporates the well-being of people, environment and resources in countries where they have a licenses to operate.

From the perspective of the organization the concept of value is subjective, but there are various benchmarks that help companies measure and quantify efforts. As an example, the textile industry is one of the most chemically dependent industries on earth and the #2 polluter of clean water.  As we have seen in recent years, clean water is becoming a coveted treasure as drought and bad business practices continue to deplete the last remaining clean water sources. In countries like Pakistan, India and China, where the textile industry is booming, we can notice the most deplorable water situations. This is not sustainable for the local societies, and it builds instability up the supply chain creating a very risky environment for large multinationals.

New technologies are available to help multinationals gather information from the bottom of the supply chain such as water use in cotton growing, energy use in knitting and weaving, or chemicals used in dying and cleaning. At the moment these are measured at factory level, and are rarely shared with buyers. Such practices allow bad practices to continue unnoticed, and the supply chain in weakened by unsustainable practices. Multinational corporations cannot make proper forecasting decisions when they depend solely on production from unsustainable suppliers; their supply risk increases as they choose to ignore these practices.

Furthermore, the public is keeping a much closer eye on the business practices of large organizations. Take for example the multiple scandals that Nike has been a part of over the years. From unsafe working environments, to child labor their stock prices have suffered one blow after another. This has weakened their buying and negotiating power to suppliers and hurt their image to customers around the world. The public relations department tried to defend the company by placing the blame on suppliers’ business practices, but in the eyes of Nike customers the company should have assumed responsibility for all practices in their supply chain.

So is value building through improved business processes a concept that should still be questioned, or is it the norm for industry leaders? Organizations must find ways of monitoring materials and information flows in the supply chain. A resilient supply chain is one from which all actors benefit and want to be a part of for an extended period of time. This ideal supply chain is built on best practices learned over years of exchanging information with customers and suppliers in a transparent manner; this IS building value through operating processes. Companies can implement best practices offered by organizations such as the Global Impact Investing Rating System or the Global Reporting Initiative to ensure the maximum amount of value is drawn from all business processes for all actors’ part of the supply chain.

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