How to take advantage of supplier information and mitigate risk
With social and environmental concerns on the rise, supplier information that was once discretionary is now defined by law. Stakeholders and governments are demanding, with regulatory backing, that businesses run ethical and sustainable supply chains. Apart from being the right thing to do, getting this right is also crucial to circumventing reputational and regulatory consequences.
When it comes to managing the risk that suppliers present, supply chain visibility has never been more important. Organizations need to know exactly who their suppliers are and what they’re doing. Achieving this also helps organizations to spot supplier value.
So, how can multinationals with large, intricate supply chains, make the most of their supplier information?
5 points to bear in mind
1-Recognize threats and opportunities
The regulatory environment requires that organizations should not only provide supplier information, but also fully understand it. The price for not meeting these regulations ranges from paying astronomical fines to being excluded from government contract bidding. There is also a reputational cost to companies that don’t comply. A recent study by Deloitte revealed that 45% of Gen Z consumers stopped purchasing certain brands because of ethical or sustainability concerns.
By the same token, businesses face the opportunity to appeal to stakeholders by committing to conscientious sourcing—for example, exclusively using biodegradable packaging. This is a strategy at the core of many marketing campaigns. Another prospect is to manage the value that suppliers can offer. Getting this right for the lifetime of relationship, requires organizations to ensure good supplier management practices.
2-Know what data is needed
The foundation on which all information relating to suppliers can be built, is supplier master data. It’s crucial that this data is well managed. At the beginning of the supplier relationship, organizations should gather the right information and then make sure it’s kept up to date, in a structured manner.
Three types of information that are subject to closer scrutiny relate to an organization’s core business, performance, and risk management needs. Basic business information is collected by the organization early on in the relationship and pertains to what the supplier does and provides. It also includes contact and payment details, as well as the signed contract, references, prices, and certifications.
Performance information is gathered throughout the partnership. This relates to factors like customer satisfaction, KPIs, service-level information, delivery, quality, progress reports and contract compliance. It also includes output and production information.
Finally, risk management information applies to the supplier’s business practices and financial situation and includes their position on issues such as human rights and sustainability issues. Once good quality information has been collected, it can be assessed and put to use.
3-View and treat suppliers as partners
Considering that organizations are dependent upon suppliers for this information, having healthy supplier partnerships in place is an absolute necessity. It's time to radically rethink the way we work with suppliers. The only way to receive good quality information from suppliers, while still enabling them to do their best work, is to establish a supportive environment. This forms part of a wider movement: supplier experience management. The principle calls for organizations to prioritize a single source of truth across all supplier data, to eradicate 100% of friction in supplier relationships.
Supplier experience management aims to succeed where too many supplier relationship management initiatives failed, because they typically only ever apply to the top 10 percent of strategically relevant suppliers. For the overwhelming majority of businesses in the supply network, there are copious bugbears with which to contend. A recent survey by HICX found that CPOs know these friction points exist, and anticipate that issues around query resolution times, communication channels and complicated businesses processes, are among the top three supplier pain points.
If there’s one thing that we have learned from the pandemic, it’s that all suppliers matter. Organizations are painfully dependent upon their suppliers, and recent events have taught us that this reliance can extend to any supplier at any time. For example, when the pandemic first hit, indirect suppliers of personal protective equipment, disinfectant cleaning products and remote working equipment, suddenly became as important to sustaining operations as key ingredient suppliers.
4-Address communication friction
There is an opportunity for organizations to view and treat 100% of suppliers as partners in the same ecosystem. In fact, within the uncertain business landscape we face, forging these alliances has never been so important. Creating a supplier-centric culture, begins with organizations identifying all the pain points that hinder a good supplier experience, and then actively weeding them out.
One such point of friction for suppliers, is the process of providing information. The survey also revealed that 46% of CPOs acknowledge they should offer their suppliers more streamlined business processes to ease the working experience.
A challenge that suppliers face is the way in which organizations request information, which can be massively inefficient and also cause initiative fatigue. For instance, many large manufacturers tend to inundate suppliers with a steady stream of requests, many of which are complicated to complete. Suppliers need to maintain their information across numerous portals, all with separate passwords. Moreover, the questionnaires often include fields that are irrelevant to a large portion of recipients.
It’s fair to say that the overall user-experience of the processes, systems and portals that suppliers must face, is a source of friction. At the end of the day, all suppliers really want is to get paid and ensure their contracts are renewed. If proving information is difficult and unpleasant, organizations shouldn’t be surprised if suppliers approach it as a box-ticking exercise.
5-Use supplier segmentation
Organizations should view their suppliers as partners and treat them accordingly. This approach empowers suppliers to work towards common goals, together with the organization. The result is quality information and mutual success.
An effective way to partnering with suppliers, is to make use of a single source of truth in supplier data, to help segment them into clusters. Groups can be filtered, for example by spend, country or category, so that road maps can be put in place to ensure the right information is amassed from each supplier group. This is crucial when it comes to managing supply chain risk.
Using supplier data to remove friction in this way, goes a long way in improving the experience suppliers have in working with a large organization. When suppliers have a healthy experience, they’re more likely to offer good quality information. And so the cycle is maintained.
Segmentation is not a new tactic. In fact it’s been around for years in procurement. However, there is an opportunity for data-driven segmentation to be utilized in today’s business landscape. Procurement has evolved in recent years to be more strategic and digital. As the function moves away from being purely transactional and starts to embrace contemporary technologies that enable more agile supplier management, having supplier-centric programs is a winning strategy.
Managing the value that suppliers represent
As the need for manufacturers to manage regulatory and reputational risk continues, it’s possible for organizations to secure and maintain good supplier information. Supported by the right platforms, processes and people, large businesses have the opportunity to create robust data foundations, from which to manage the risk and value that suppliers present.