Supplier Data Comes of Age: The Benefits of Knowing Your Suppliers
Just who are my suppliers? It’s a simple question, but one that many businesses struggle to answer precisely.
Look into a supplier database and you might find ‘FedEx’ and ‘Federal Express’ listed as two separate entries. The French unit, meanwhile, may have its own record for ‘FedEx France’.
Are there really three suppliers? Or is there one supplier, with two – or maybe three – operating units? Who knows?
In an era when businesses ask so much more of their suppliers – a topic we will explore later – it seems strange that many tolerate such confusion over who their suppliers actually are.
The practical advantages of accurate supplier data
Bryan Nella, an executive at multinational enterprise software organisation Infor, talks about some of the practical advantages that can be enjoyed in the world of digital procurement once supplier data is accurate.
“Remove paper and manual processes – automating supplier processes opens the door to greater opportunities,” he enthuses.
“Where there’s Excel spreadsheets, emails or phone calls, there is room for errors and discrepancy. Automating the invoice creation process by auto-populating from the purchase order removes the likelihood of discrepancies. This opens the door to auto-approval of invoices, as long as no exceptions exist.”
Such an approach also offers opportunities for programmes like invoice discounting, which can boost the health of the supply chain. A supplier working with multiple units of an organisation can be thoroughly risk-checked just once, rather than suffering multiple checks of possibly variable quality.
Reducing the risk of fraud and modern slavery
Forms of internal fraud can be prevented at source: for example, through implementing stricter control over changes to supplier banking details. As the links between businesses and their suppliers grow increasingly tight, there’s all the more reason for understanding the supply base.
This process arguably started with the rise of just-in-time manufacturing, but has intensified to the point that companies are being held guilty for the sins of their suppliers, in the court of law or in the court of public opinion.
For example, the UK’s Modern Slavery Act demands that all organisations with revenues in excess of £36m look deep into their supply chain and report on what they are doing to prevent the use of slave or trafficked labour.
In the US, a single source of truth on suppliers facilitates compliance with Office of Foreign Assets Control sanctions.
Suppliers are “a direct extension of your business”
It is a big mistake to “think of your supplier as a separate entity,” says Mr Nella. “That supplier is a direct extension of your business and brand.”
There are also many financial reasons to shift to supplier information management systems. Boards of directors may demand increasingly complex reports so they can analyse and prune back spending; procurement teams must ready themselves to produce such reports, particularly if 2019 brings a global economic slowdown, as some economists predict.
If such reports label FedEx and Federal Express as different entities, they could lead to bad decisions. But it’s important to remember that plenty of human insight will still be needed.
When it comes to supplier data, “nail the right question,” says Rich Pugh, co-founder and chief data scientist of Mango Solutions, a Wiltshire-based consultancy.
Rachel Sellers, principal supply chain consultant at the Society of Motor Manufacturers & Traders’ Industry Forum says: “You can find nuggets of gold in your data, but unless you find the right question to answer, you’ll surface insight rather than wisdom that will add value.”
The value of greater insight
Achieving a firmer grip on supplier data, then, is a key step towards building a digital procurement function, where low-level tasks are automated through artificial intelligence (or perhaps its low-IQ cousin, robotic process automation), freeing up staff for higher-level thinking.
“Better insight drives better understanding of our markets, suppliers and risks, thus allowing us to make more intelligent decisions and thereby fulfilling the role of a true business advisor,” Giles Breault writes.
If that sounds easy, think again. Supply chain analytics is still evolving, notes Mr Pugh.
“The marketing hype around analytic tooling would suggest that data science is mostly about throwing algorithms at data and seeing what happens. This is not true, and supply chain analytics is one area where this sort of approach can lead to difficulties,” he states.
“Also, we often find we can’t over-rely on what has happened before as supply chain dynamics can change over time. Applying algorithms to historical data may fail to enable an understanding of future behaviours.”
And so, while supplier information systems address some very important problems, others must be tackled through human ingenuity.
Still, this represents a vital step forward when compared with the alternatives, such as relying on a patchwork of legacy systems that solve none of these problems at all.
Three ages of supplier data management
Concept: every system or business unit keeps the data it needs
Reality: seems cheap and convenient but the complex patchwork can only hang together by custom integration
Concept: put all supplier data on a company-wide enterprise resource planning system
Reality: procurement’s needs may not be top priority when choosing a supplier, so management of supplier data may be basic
Supplier information management
Concept: one platform manages all supplier data and then connects to the rest of the business’s systems
Reality: requires company-wide discipline – but the system creates the workflow that makes discipline easier
This article, by Oliver Pickup and Gren Manuel, is part of our detailed report ‘Supplier Data: The Path to Digital Nirvana’, which you can access here.