Managing suppli-ers and supply chain risks has taken on new importance in a global and downturned economy. The pressure is on businesses to contain costs forcing them to enter global supply markets and to find more efficient ways to produce products and services in a timely manner. These demands necessarily require a highly responsive supply chain that is also efficient and reliable. In addition, the pressure is on suppliers to improve pricing and delivery of products and services without sacrificing quality. These kinds of pressures can increase risks unless firms are able to evaluate and manage supply chain productivity and quality using business intelligence tools that incorporate Supply Relationship Management (SRM).
Business intelligence tools are often mistakenly viewed as mere measurement tools, when, in fact, that’s the job of transactional accounting systems. You can measure revenue generated, expenses, number of customer complaints, production totals and so on, but these transactions don’t tell you how the overall organization is functioning or whether it’s performing in a way that ensures market adaptability. They also don’t make needed supplier improvements more visible before product or service delivery because they have after-the-fact metrics. In other words, transactional recording and data manipulation for reporting purposes are necessary but have little strategic value.
Adding the Strategic Quality
Enterprise resource planning (ERP) is a step closer to integration of management information, but it still is missing the strategic element that leads to an organizational ability to identify, evaluate and mitigate supply chain risks. Effective business intelligence tools, on the other hand, can be adapted to take analysis beyond evaluation of past results to identification of future risks to business success. In doing so, firms have ideal opportunities to expand supply chains to embrace minority and women business enterprises (MWBEs) by creating strategic relationships that help the organization become highly adaptive.
For example, data mining tools can be used to project production delays based on component delivery delays. However, the identification of the future delays should actually be an end point. The business should have a system in place that is capable of identifying the potential of component delivery delays enabling it to either work with the supplier on problem resolution or to quickly and efficiently find alternative component sources. A successful procurement system collaborates with diverse suppliers and supply company ownerships. Business intelligence tools should not operate in a vacuum and become only reporting as opposed to management tools.
Partnering for Strategic Success
The fact is that establishing collaborative relationships with suppliers, including MWBEs, minimizes risks and improves strategic performance. Too many procurement professionals believe that report analysis is adequate, but report analysis alone does not establish superior supply chains. Instead, the organization should develop collaborative supplier relationships that help to ensure supply chain strategies are aligned with the company’s overall competitive strategy for success. In other words, business intelligence tools should mesh with Supplier Relationship Management (SRM) best practices.
One of those practices is establishing an MWBE recruitment and development program that is part of an inclusive procurement process reflecting a supportive corporate culture. Anything less will be viewed by staff and suppliers as an effort to merely comply with laws rather than a sincere effort to develop mutually beneficial collaborative relationships that bring quality to the supply chain.
Other best practices begin with developing internal cross-functional communication to insure all departments are pursuing the same goals and remain on track within the organization to minimize potential for internal delays. It’s critical to establish problem resolution processes so that working relationships with suppliers remain productive and positive. Creating value measurements for both the organization and suppliers ensures that these values remain intact during the life of the procurement process. Involving all functional areas from procurement to engineering to maintenance in strategic decision- making promotes the input of all options for cost containment and efficient processes into the process. It is also critical to establish supplier control policies and procedures that are clear and workable. Implementing these best practices can result in adaptive systems that remain responsive to customer needs first, thus improving competitiveness.
To mitigate supply chain risks, which can include unexpected costs, failure to deliver product or services on time, supplier production problems and inventory inadequacies, the organization must continually manage the flow of information between suppliers and itself. Effective policies and procedures can establish the lines of communication, but it’s up to management to insure these lines are kept open and are regularly used.
Collaboration with partners in this manner opens up many possibilities for working with diverse suppliers because product and service deliveries are monitored, managed, adjusted and evaluated on an in-depth continual basis. In many businesses, the mode of operation is to put a contract out for bid and then sit and wait for delivery. The first awareness of supply issues occurs when the supplier is unable to meet the delivery dates or quality of delivered products or services does not meet specifications. In reality, supplier lifecycle management requires an ongoing partnership with suppliers, so problems are identified and corrected early and not late. Early problem identification will drive continuous improvements that benefit the company and its customers by benefitting the suppliers.
More Than Price
In looking at a Supplier Relationship Management program with best practices, it’s easy to see that many opportunities exist to improve competitiveness and responsiveness through supplier diversity. Instead of looking strictly at the bid price, the company should look at the supplier’s ability to deliver on a variety of metrics, including component quality, on-time delivery, ability to respond to problems or issues that arise, and ability to expand and grow with the organization. Just as importantly, the supplier must be adaptable and willing to communicate regularly and honestly through continuous tracking systems.
By not relying strictly on price when choosing suppliers, diversity is more likely to be naturally introduced into the supply chain as other factors are considered in the decision making. Once supplier diversity is incorporated, the collaborative structure serves as a mentoring system that strengthens and optimizes supplier performance. Problems are identified and corrected quickly, early and satisfactorily. This is an ideal setting for inclusive procurement programs and represents SRM best practice.
The SRM is just one tool among many business intelligence tools. Business intelligence relies on collecting and aggregating data and presenting it in a way that makes it meaningful to managers. However, SRM goes further by creating a collaborative relationship between the supplier and the organization. Risk is reduced while efficiency is improved, meaning the ultimate winners are the organization’s customers.
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