Why does your Organization need a Supplier Management Solution?
Table of Contents
Increased levels of globalization over the last decade have altered the business landscape, causing it to become ever more complex and competitive. This has led to organizations being required to engage and build relationships with suppliers from around the globe to source goods and obtain an advantage over key competitors.
These heightened levels of competition require organizations to remain agile, both domestically and internationally. This has made procurement processes and supply chain management a key consideration for organizations. Organizations that continue to rely on managing vendors using multiple ungoverned processes will find it challenging to maximize returns. The abundance of available data and ever-changing regulations mean that manual processes are no longer sufficient.
Switching to a supply chain management solution transforms processes and helps guarantee that supplier relationships are geared toward achieving mutually beneficial success while ensuring that supplier risks are mitigated.
Why is supply chain management important?
Organizations must today more than ever manage their suppliers at each stage of the supply chain and ensure clear communication between both parties. When managed properly, an organization’s procurement processes and supply chain are more efficient, and the organization can produce products of a higher standard, while maximizing revenue.
From a wider societal perspective, supply chain management enables consumers to purchase essential products for reduced prices. This provides benefits in terms of increasing living standards and helping achieve economic growth due to the wider range of businesses involved in supply chain management, thus creating greater employment opportunities.
From an organizational perspective, supply chain management and management of supplier data provide the following core benefits:
- Organizations can capture, maintain and govern all the data from each supplier, rather than just the sub-set required by the ERP(s). This provides a source of cleansed supplier data that can be relied upon 100% of the time for making crucial business decisions. It also empowers organizations by ensuring stakeholders can focus on business output to drive the organization forward rather than spend time validating and correcting supplier data.
- Gaining insights from data that can be relied upon also allows businesses to evaluate and manage supplier performance. This means that organizations can quickly and reliably ascertain whether a vendor is working to the organization’s requirements and any agreed KPIs.
- If issues are identified and are shown to be hindering supply chain performance, supply chain management software ensures that this performance is recorded, the correct individuals can be identified for contact, problems addressed, and thus overall efficiency levels are increased.
- Ultimately, choosing the right supplier management platform ensures that there are benefits for both the organization and the supplier.
What are the benefits of supply chain management?
In addition to the previously highlighted benefits, supply chain management backed up by supplier information management (SIM) provides organizations with wider benefits.
Operational & production costs are reduced
Supply chain management identifies processes or suppliers that are not contributing sufficiently to the functioning of the supply chain and adding value to the final product. Once these have been pinpointed, organizations can adjust, update, or remove these processes, or even source and work with a new supplier.
The timely delivery of parts and raw materials is essential to any supply chain. Delays in communications can lead to increased costs due to having to source materials from elsewhere at the last minute to fulfill orders, leading to reduced revenue for the organization. An efficient supply chain delivers reduced production costs and is not slowed down or stopped entirely by inadequate communications.
Improved collaboration with suppliers
Collaborating with suppliers improves business performance, increases market share, increases customer satisfaction and generates greater amounts of revenue. Supply chain management software empowers organizations by providing them with an overview of the suppliers within their supply chain and the ability to build better relationships with suppliers.
This ensures that they are working towards mutually beneficial relationships with both parties set up for success. While this is valuable for both entities, over time, it can be particularly advantageous for the organization, especially if the business uses a supplier management platform that is supplier-centric and provides suppliers with a single, intelligent supplier portal.
This helps streamline the supplier’s operations by reducing the number of systems they are required to log in to, while also cutting down on the data required, which is often duplicated across these systems. Understandably, without this, it leads to frustration from the supplier’s perspective, leading to friction in the relationship. Managing the supplier experience, on the other hand, means that friction is removed, and the conditions are in place for all suppliers to succeed.
Increased supplier performance
When collaboration with suppliers is improved, this encourages them to focus on improving performance and achieving the best results possible, benefiting both the vendor and the organization. For suppliers, this includes doubling down on issues within their own business that are impacting an organization’s supply chain and incentivizing them to find a solution. This might involve investing time and capital into developing innovative solutions to overcome issues that can benefit overall business in the long term.
This will also lead to the supplier favoring working with the organization, making them the customer-of-choice. This benefits the organization as the vendor will go the extra mile to find solutions and accommodate special requests. It also makes the organization more likely to benefit from more favorable rates compared to other businesses.
Reduced risks
As organizations grow, the number of suppliers with which they engage also increases. This leaves businesses open to more supplier-related risks and the need to manage them effectively. Areas where organizations must focus their attention to reduce supplier risk include supplier onboarding, supplier lifecycle management and responding to a range of external threats, such as natural disasters, theft and fraud.
Supplier management software assists organizations in managing these risks and responding to any disruptions that occur, both from a supplier perspective and from wider global events. It ensures that organizations are not adopting a siloed approach, which can lead to gaps in planning. Risk management processes are integrated with supplier data capture to ensure risks can be identified, pre-empted, and effectively mitigated before they impact the business.
Keep up with market demand while avoiding excess stock
Businesses with access to accurate and integrated supply chain data can better understand changes and demand within the market. This provides an advantage over competitors who may not have the stock to fulfill orders, which otherwise results in customer dissatisfaction and seeking a competitor to purchase from.
While responding to market demand may seem relatively straightforward, avoiding the bullwhip effect is crucial for preventing friction throughout the supply chain. Essentially, this occurs when there is a lack of communication around supply and demand. It entails each entity involved in the supply chain overestimating demand due to a lack of communication, meaning a slight increase in customer demand has excessively increased by the time the manufacturer produces the products, leading to high supply chain costs and excess stock.
High stock levels can lead to increased costs in the short term and even a loss of revenue, especially if dealing with perishable goods. Excess stock takes up extra space in warehouses and if market demand returns to normal levels, businesses then find themselves sitting on products that require medium to long-term storage. In the instance of perishable goods, excess stock caused by a lack of communication means that this will never even reach the market and is effectively expenditure wasted.
Organizations should invest in supply chain software to overcome these issues and obtain a holistic overview of their suppliers within the supply chain. This allows them to effectively communicate with vendors at each stage to ensure that issues related to miscommunication are avoided and that issues such as excess stock are avoided.
Greater levels of compliance
The more intricate details of ever-increasing supplier compliance requirements, including tax and business registration, through to areas such as sustainability and trade compliance can be easily overlooked from an organizational perspective. However, failures in this area can have long-lasting ramifications for the businesses. Assuming that suppliers will be aware of new legislation or changes in existing legislation can pose numerous risks for organizations.
Failure to utilize supplier compliance management software to manage supplier compliance and ensure that vendors are complying can lead to unexpected financial penalties that may threaten a business. This in turn can then impact the organization’s supply chain and cause delays and a slowdown that impacts revenue, with customers opting for a competitor. In addition, there is also the issue of reputational risk to the organization, as its reputation could be affected through association with the supplier.
Taking an automated approach tailored to each and every supplier with the right communications is the ideal way in which organizations can protect their reputation within the market and with their customers while ensuring that their supply chains are not disrupted.
More sustainable procurement
Over the last five years, there has been a marked increase in awareness of the impact of climate change on the planet, as well as exploitative practices that can occur within manufacturing and supply chains. This increased awareness of ESG-related issues has led customers to seek brands that align with their principles and ethos. Organizations that engage in unethical business practices risk suffering a loss of reputation within the market and losing customers and revenue.
However, this is not confined only to the practices of the organization but also its suppliers. Vendors engaging in unethical or exploitative practices pose an issue for the organization through association. It is, therefore, imperative that organizations understand not only who their tier one suppliers are but also their tier two and three suppliers.
Supply chain management software empowers the organization to focus on achieving more sustainable procurement. Part of this should also extend to educating existing suppliers about the need for sustainable and ethical practices and the ramifications of not doing so. Ensuring they adhere to the organization’s ESG expectations when engaging and vetting new suppliers of their own should be non-negotiable.
An ever-increasing number of consumers are looking to purchase from brands committed to reducing carbon emissions and their impact on the planet. Opting for supply chain management solutions that track suppliers’ carbon emissions throughout the supply chain is an ideal way to monitor and identify those who need improvement.
Investing in the supplier relationship and providing them with the best experience is essential. Those who recognize the benefits of working with the organization will be more receptive to working collaboratively to achieve these goals, as they will highly value the working relationship with the organization.
As we have seen, organizations have numerous benefits from integrating a supplier management solution into their business. Levels of complexity within supply chains will only increase and those organizations who invest will enjoy greater agility and the ability to build mutually beneficial supplier relationships with vendors around the globe. Organizations will also benefit from streamlining and managing supplier compliance, allowing them to focus on driving profitability. This will empower them to have a competitive edge over key competitors and maximize returns on a long-term basis.
Article updated September 24
