How To Improve Transparency & Reduce Supply Chain Risks When Working With Suppliers
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The shift from cost-savings to supply chain resilience has reshaped the order of the list of top priorities for many organizations. Reducing supply chain risk and achieving greater transparency now dominate the thinking for 2022, especially in light of recent global events and as a result of increasing demands in areas such as sustainability. As a result, cost reduction has been knocked off the top spot of CPO priorities in Deloitte’s most recent CPO Survey for the first time in its ten-year history.
In this webinar, using the example of sustainability, Andrea Sordi, Academic Director, Global Supply Chain Institute at the University of Tennessee joins Costas Xyloyiannis, CEO, HICX, to discuss in more detail what this shift means in practice and the innovative approaches that are needed to increase transparency and reduce risk.
Andrea begins the discussion by explaining some of the major trends that have been impacting the need for a focus on sustainability as one of the major areas to address.
Sustainability is a ‘must-do’
As he explains, “I think the big change is that sustainability isn’t a nice to have anymore for organizations, it is a ‘must-do.’ There’s pressure from different stakeholder groups, fundamentally because sustainability is seen as a risk factor. Whether it’s a risk factor from a financial standpoint, or for the continuity of the business, if you take the triple bottom line concept, if you want to be profitable over time, you need to consider that consumers are demanding sustainability, customers are demanding sustainability and employees are demanding sustainability. And investors in the financial community are tracking sustainability as a risk factor.”
“You may have seen BlackRock over the past two years, issuing warnings and requesting to track the ESG rating as one of their elements in evaluating the opportunity of whether to invest in assets, or not. So, that’s one big push, and the most noticeable one,” he adds.
The link between sustainability, transparency and risk
Costas comments on these pressures, pointing out, “I think these are all great examples which illustrate the need for transparency but you also see the interconnectedness of this ecosystem. What we need to first realize is, for transparency, it’s a two-way street. You have a need to share information with suppliers, but suppliers also need to be sharing back information with us.”
“Now, when we look at it like that, gaining this information is actually what gives us transparency and I think better transparency then actually makes it more efficient for us to deal with these compliance topics, or at least if, we can’t be compliant, then we can have a better way of assessing risk,” he adds.
Costas also talks about another aspect driving transparency, which are the internal use cases. “Transparency is also playing a role within an organization because when you look at all these new initiatives, which are supplier-related, they’re very cross-functional within an organization, so there’s the need for transparency within our own four walls as well.”
Data is the foundation
Talking about the remedial action enterprises need to take, Costas reminds us, “You need to establish the foundation of data to be able to drive transparency and also drive automation in your processes. If you want to be more automated, you have to be more data driven and if you don’t address it, I think you are failing your organization. And you’re also not keeping up with the way which I think supply chains are going to operate in the future, which is more data-driven and more automated.”
Andrea agrees, adding, “If I go back to my first point – that sustainability is a risk management factor – to mitigate risk, you need to create trust-based transparency. So, the importance of collaboration isn’t simply about changing data and information, it’s about how you can trust that information – it has to be reliable.”
Data and collaboration with suppliers
Andrea warns, “We live in a world where there’s oceans and oceans of data. We are overwhelmed with information. I think the challenge is determining what kind of information or what kind of data you are looking at, and what’s the purpose of it.”
“As long as you have 80% of the information for the purpose that you need it for, and it is good enough to go, just use it – Get the business going and then you can improve, elaborate, and build on that. Don’t wait to be perfect before starting because then it is not going to happen.”
Responding to this, Costas adds, “We also have to remember that you heavily depend on the supplier for this information, so you actually have to be thinking, ‘how can I engage them? How do we introduce elements of automation and self-service, to make it easier for them to provide us this data and make it more efficient?’”
Be practical about requests for information and data
Linked to Andrea’s point about having a clearly defined focus for the data, Costas explains that there is a temptation to try and ask everything at once, which he says can dilute the impact as it then becomes more difficult to obtain good information in the first instance.
“I think it is about figuring out what you need now, and you can always grow from that,” he says.
“The selfish side of it is, we need good data to operate. You cannot live without it internally. So, to serve your purposes, you actually have to look at it in a different way and serve those stakeholders, which are the suppliers in this instance,” he adds.
The supplier’s perspective
Costas highlights that there are many teams that interact with suppliers outside of Procurement, which can make it difficult to understand what an end-to-end experience might look like for any given supplier.
“So first of all, let’s look at it from their perspective and then think, ‘how do I simplify and establish a single channel which can be trusted with my suppliers?’ For us, this goes a long way in the journey,” he explains.
“Today, suppliers are bombarded by multiple channels, which makes it very inefficient. If you can focus on a single channel and approach like a portal, then you need to be proactive in driving the engagement. Those who have done this very successfully are the ones who have that discipline and then are also using the channel.”
Andrea adds that this is also important to engage suppliers from small or medium enterprise backgrounds and diverse businesses, as he highlights, “Making that experience easy and enjoyable, I think is a way to attract diverse businesses, those investing in social sustainability, and that is even more of a ‘must’ in light of the direction in which we’re going.”
The future direction of Procurement
On the future of Procurement, Andrea says, “If you look at the list of priorities for the Procurement organization, this is getting longer and longer. So, by definition, Procurement is becoming really a strategic asset for organizations.”
Costas agrees, adding, “I think we’re also seeing new approaches being looked at. Now, we are personally very excited about this idea of hyper-segmentation.”
“What we’re seeing is that you need lots of different segmentations. There’s a risk segmentation of your suppliers, there’s sustainability, there’s innovation. There are loads of combinations and permutations out there in terms of how you will manage all these different aspects and we think that’s going to be key for the future, to drive a lot of these things in a very automated way.”
“Now the result is, a lot of personalization and tailoring, all things we’ve been talking about.”
The final, key piece of advice is to look at how to collaborate both internally and with external stakeholders and develop a roadmap of priorities based on need and urgency.
Don’t be daunted but pick one to get started on and focus on it, or as Andrea puts it, “Don’t try to boil the ocean, just start with what matters most.”