The supplier relationship is evolving.
In the past, supplier relationship management has been focused on getting the best price from suppliers and creating efficiencies in the supply chain. Now, as organizations move to more integrated partner ecosystems, there’s greater potential to work closely with suppliers, improving agility and innovation.
As collaboration takes center stage, are companies ready?
One quote gets to the heart of the changing supplier relationship. In a recent report by supply chain consultancy APICS, a procurement manager commented: “We were looking for low cost suppliers, but they can only give us lowest cost things…we’re looking for suppliers with capabilities, looking at suppliers with expertise that we don’t have.”
The narrow focus on cost has to change. As mentioned in a previous blog, an estimated 65% of innovation for any company is sourced externally, with 80% of the business value for automotive companies coming from their partners. Companies need find better ways to work with suppliers, to leverage their skills and competencies to improve supply chain performance and customer experience.
A fresh approach to supplier relationship management lies at the heart of this move.
Why aren’t we better at supplier collaboration?
Research from Forbes suggests that as many as 47% of all supplier collaborations fail. In the case of one car manufacturer, poor supplier relations over a 10-year period led to $24 billion of unrealized income.
Part of the reason for these worrying results is that managing suppliers has often been seen as the responsibility of procurement, leading to a focus on price and efficiency. Partner collaboration means engaging with suppliers at many levels, it touches innovation, product development, supply chain and inventory management. There is now a breadth and depth to relationships that can’t be managed by a single department.
Viewed in this context, it’s not so surprising that research from the International Association of Contract and Commercial Management (IACCM) found that most Supplier Relationship Management programs were still in their infancy, with only 11% of companies seeing their current technology strongly support supplier relationships.
The benefits of strategic supplier relationship management
To be more successful at collaboration, organizations need to identify and engage with key suppliers at all levels, and the benefits of a strategic approach to supplier relationship management include:
Strategic supplier segmentation
When companies have segmented their supplier base, it has often been based around profitability and risk. Companies identify which suppliers bring the most profit and which represent the greatest risk should they fail. As both the pace of business change and collaboration increases, these measures may no longer be sufficient.
Suppliers must be measured by the value they offer the business today and what potential value they can deliver as your business evolves. It’s no longer enough to focus solely on a small number of key suppliers, you should attempt to communicate and engage with as many of your suppliers as possible.
By creating a mutually beneficial relationship with your suppliers, you can both work for cost savings over the long term. This close, two-way working relationship with suppliers not only delivers cost savings, it can reduce availability problems, delays and quality issues while improving the service you deliver to customers.
By focusing more closely on the end-to-end supplier relationship, you allow your suppliers to gain a more complete understanding of your business. They can better understand and address your requirements. Working closely together allows you to dramatically reduce delays and issues in the supply chain. Where issues do arise, a positive relationship with suppliers makes resolving them much easier.
Optimized supply chain
As your business becomes more integrated with that of your suppliers, you can improve business processes and workflows across your supply chain. In some cases, both parties will be able to adapt their own processes and operations to better accommodate the other, leading to further efficiencies and greater business agility. This gives you greater visibility into your supply chain to help boost the performance of suppliers while being able to consolidate onto key, high-value suppliers.
Improved product development
Taking advantage of the capabilities of your suppliers allows you to quickly and effectively fill the gaps within your own product development teams. You can ensure strategic suppliers are engaged early in the development process and, in many instances, outsource elements of the product development and delivery process to your suppliers. Through this type of collaboration, you can both bring products to market faster and at higher quality as well as benefiting from the supplier’s skills in sourcing, cost management and production.
Enhanced compliance and governance
In a traditional supplier relationship, visibility across your supply chain is poor, making effective governance challenging. Taking a more integrated two-way approach to your supplier relationship that connects people across different functions of your organization increases the transparency of operations to minimize risk and improve governance. Working in a controlled and collaborative manner across all supplier interactions facilitates regulatory and industry compliance.
A technology platform for supplier relationship management
To deliver complete end-to-end solution for strategic supplier management, you need a comprehensive technology platform – such OpenText Active Community – that can deliver a single solution that can reach across your organization and that of your suppliers.
Key benefits of an enterprise supplier relationship management platform include:
Improve the quality of supplier information
Keep a single, centralized, and accurate source of your supplier information – including contact details, contracts, insurance certificates, bank account numbers and taxpayer IDs.
Reduce the cost of community management
Reduce manual processes and costs for managing your supplier community while letting partners self-manage their profile information.
Improve business agility and responsiveness
You can quickly onboard new partners, automate the roll out of new programs and let partners set up their own customized alerts or updates.
Improve supplier communication and collaboration
Deploy an effective and consistent means to communicate and share information with trading partners. Collaboration and communication tools – like notifications, alerts and surveys –help you build deeper relationships.
Integrate supplier information with enterprise applications
You can integrate supplier management with your ERP system – such as SAP or Oracle – to ensure that your core operational systems are populated with accurate information to improve processes and reduce costs.
Click here to learn more about how supplier relationship management can help you.