There’s no doubt that good management of supplier information can result in increased productivity and improved profitability.
The discussion around the effect of reduced supply chain costs on profits and where money can be saved due to supplier information management (SIM) is, therefore, naturally a hot topic.
According to the Logistics Bureau, “If net profit on sales is 5%, for example, a reduction in supply chain costs from 9% to 4% (or from 12% to 7%) will double net profits.”
Establish a savings framework for your supply chain
However, it’s also true that savings rates quoted by analysts and practitioners can vary greatly.
Therefore, it’s advisable to assess what value a bespoke supplier information management platform will bring by comparing a baseline of current costs against projected costs. It’s also worth remembering that many supplier-related activities are taken for granted, or merely seen as the status quo – and therefore these are the areas where the potential to reduce costs may be greatest.
To establish the framework for where savings can be identified, you need to take into account where easy (but perhaps often overlooked) efficiency improvements can be made and how much time is usually spent on core supplier activities.
How you can improve efficiency with supplier information management
Many of these supplier activities will relate to ‘soft’ costs that, when improved through effective supplier information management, can be reduced thanks to better processes and greater productivity.
Examples of activities that can be made more efficient and less time-consuming include:
- Looking for missing supplier documents
- Calling suppliers due to missing email addresses/phone numbers
- Looking up bank account information
- Researching supplier contracts
- Validating supplier tax identifiers
- Managing and aggregating supplier relationships (parent/child)
- Collecting and managing alerts related to a supplier
- Mitigating reputational damage due to a supplier incident/event
‘Hard’ cost savings that can be made with SIM
Supplier information management can also help you to generate greater cost savings. In our experience, we’ve found that there are certain areas where insufficient or low-quality supplier data can have a significant impact on your P&L, including:
- Missed early payment discounts or rebates
- Liabilities due to lack of knowledge from a lost contract
- Cost of paper and materials being used for facilitating supplier activities
- Cost related to off-contract spend
- Cost of help desk resources required for managing supplier requests/complaints
- Fines/penalties or missed revenue due to supplier non-compliance
- Inability to act due to a supply chain disruption due to missing information
- Training on supplier systems due to high turnover in procurement/AP
- And even ‘managing’ suppliers that are no longer suppliers
Supplier information management boils down to being able to create master data – an accurate record that can be governed and used to provide a verified picture for all activities involving any one supplier.
SIM tools allow you to put in place a structure that will help your sourcing or procurement-related activities become more efficient and productive, because they provide you with the controls required to govern supplier data properly.
To gain an even deeper insight into the benefits of Supplier Information Management, take a look at our detailed resources section here >>>
First published in November 2018, last updated in January 2020