The Supplier Management Relativity Principle
Long before Albert Einstein changed our world through special relativity and general relativity, Galileo Galilei articulated the first relativity principle back in 1632. Many take for granted the results, such as how GPS systems can track our exact position on the Earth, within mere feet – and even while in motion (us, the earth, our solar system, etc.). The reality is that our perception, and the world around us, is relative to our position and viewpoint.
What about supplier management?
The management of suppliers is not handled in a bubble – and the stakeholders of what, and how, suppliers are managed affect all facets of an organization. In fact, it may be difficult to name another focus area that has as much impact on an organization and splits across such a wide range of stakeholders.
Take the following as an example (and, yes, this just scratches the surface):
|Treasurer||Monetary Policy||Working Capital not optimized||Extend payment terms; Maximize early payment discounts|
|Accounts Payable||Pay Suppliers||Errors (banking information, overpayment); Compliance (tax, etc.); Capturing discounts; Inefficiencies (duplicate supplier records); AP fraud||Clean and accurate supplier master; ensure compliance; efficient method to handle AP helpdesk (e.g., where is my payment?)|
|Strategic Sourcing||Leverage spend power with the “right” suppliers||Off-contract/maverick spend; Benefits/Rebates not captured||Oversight into supplier adds; Visibility into non-compliance; Ensure discounts are captured; Scorecards to ensure “right” suppliers are used.|
|Category Manager||Day-to-day supplier management||Surprises; No supplier improvements, or improvements which are not leveraged||Insight (e.g., risk); Efficiencies (e.g., communication); Scorecarding; Ability to drive performance improvements|
|Procurement IT||Maintain/Improve procurement systems||Process inefficiencies; Data inefficiencies||Improve operational efficiencies (e.g., insight, data quality, processes, integration, etc.)|
|Small Business Liaison Officer||Meet government contract requirements||Loss of contract; Fines||Identify small businesses (note: and/or HUBZone, Vet, etc.); Collect affidavits|
|Supplier Diversity||Optimize diverse supplier usage||Negative press and/or local roadblocks due to insufficient diverse spend; No directory for sourcing to leverage||Identify and qualify diversity suppliers; Provide “yellow pages” of capable suppliers; Track and report on progress|
|Chief Financial Officer||Maximize shareholder value||Cost||Everything above and below|
|Information Technology||Select and manage internal systems||Inefficiencies and/or ineffective data governance, integrations, processes, etc.||Optimize data governance and enable effective processes, while having the flexibility to adapt to organizational/system changes|
|Supply Chain||Ensure supply is available as needed||Disruption; Compliance (e.g., REACH, RoHS, etc.)||Increased insight to mitigate risk (e.g., scorecards, 3rd party data, incident alerts, compliance, costs, etc.)|
|Manufacturing||Efficient, and effective, manufacturing||Disruption affecting sales; Costs (e.g., supplier, operational, etc.)||As above|
|Compliance||Ensure compliance, whether internally mandated (e.g. social responsibility) or externally mandated (e.g., FCPA, SOX, etc.)||Government fines; Reputational risk||Visibility, control, and auditability of compliance initiatives|
|Legal||Protect corporate interests||Liability||Contract and legal insight across organizational functions|
|Procurement Excellence||Continuous improvement||Inability to affect cross-functional change||Non-siloed solutions that drive cross-functional procurement/supply chain improvements|
|Sales||Forecastable sales; Sales growth||Supply disruption; Product quality; Being out of compliance with customer||Whatever others need in order to do their jobs effectively|
|The “Customer”||Poor quality; Price||As above|
And… it’s all intertwined. How can the Treasurer expect to optimize payment terms, if Sourcing cannot effectively transfer that knowledge to AP? How can AP expect to capture an early payment discount if they don’t have a term, or it’s hidden within 20 record versions of the same company in the ERP system? Ultimately, there are many stakeholders as it relates to supplier information – and each possesses their own relative perspective. We haven’t even touched, yet, on the complexity of “a supplier” (e.g., by relationship, by country, by buying organization, by payment location, etc.), which adds another dimension to the perspective.
The complexity is great and the urgency is here; therefore, the myopic approach of the past has passed away and leading organizations realize that, in order to thrive, an understanding and active collaboration is needed across all business functions.Traditional solutions (e.g., ERP) haven’t been able to meet wide-ranging supplier management needs, and niche solutions (e.g., contract management, scorecarding, catalog management, diversity, etc.) have assisted as long as they could to “plug the hole”; however, a new era of supplier management solutions has risen to overcome these hurdles. If your organization still manages supplier information in a bubble, the time is now to bring the stakeholders together, create a collective “to be” vision, acquire appropriate technology, and embark on the journey towards effective, organization-wide supplier management.
Note: As you consider your options of “business as usual” versus “change”, one of our customers shared with us their ROI model and provided us permission to share it with others. It is not full of fake numbers (e.g., on average you can save X on supplier management per supplier), as everyone’s environment is different. It does, though offer savings areas, as well as placeholders to enter your own estimates.