April 4, 2013

Adding a Third Element to Supplier Management

As organizations continue to consider the supplier management technology, the relationship that most think of in this dynamic is often between the buyer and supplier relationships. However, in many cases, the approach to managing this dynamic may need to incorporate a third aspect– that is the “customer”.

Based on discussions in several postings on Supplierpedia, on its own, supplier management requires the flexibility of understanding all the unique requirements that stakeholders in a specific process may need. But in most discussions about supplier management, the discussion is limited to measuring the effectiveness of the relationships between the buying organization and the supplier.

This is evident by considering a common supplier management topic like supplier onboarding. For most organizations, to complete the onboarding of a supplier, approvals must be made by different members of the buying organization to not only initiate the invitation, but also to complete the process.  Moreover, approvals will be contingent on the completion and review of signed documents or data being provided in the form of surveys.

However, in some cases, supplier relationships may need to take on an added-level of complexity by incorporating additional outside parties or relationships (e.g. insurance, contract flow down clauses, etc.), due to the nature of the business or a category being purchased. Adding this third element to the buyer-supplier relationship is typical for companies focused on outsourcing of either services (e.g. MSPs) or manufacturing (e.g. ODM, OEM).

Outsourcing Models Change Supplier Management

The influence of outsourcing in various industries has certainly been on the rise. For instance, according to the Information Services Group, the growth of the global market for outsourced services has increased 120% in the past twelve years, from $45B in 2000 to $99B in 2012. Moreover, as cost pressures and regulatory requirements continue to challenge the ability to grow revenue, companies in several industries are looking to trusted outsourcing providers.

In this regard, from a supplier management perspective, consider relationships that some of the largest and most recognized global brands. For instance Apple outsources the production of their products to third party ODMs like FoxConn. As the world’s largest electronics contract manufacturer measured by revenues, FoxConn’s clients include major American, European, and Japanese electronics and information technology companies. Some of the notable products that the company manufactures include the iPad, iPhone, iPod, Kindle, PlayStation and the Wii U.  As the ODM, Foxconn must continually manage its direct supplier relationships closely, for meeting the high quality standards of these globally recognized products.

When you look at outsourcing providers, they actually serve as a “neutral” party that offer their customers a supplier management strategy, while ensuring an efficient operation in leveraging their own direct supplier relationships and the economies of scale that come with pre-negotiated relationships with suppliers. Furthermore, by their nature, outsourcing providers need to take supplier management one-step further than most organizations, in that they are contracted to manage against their effectiveness according to internal standards, but also their customer’s standards and/or requirements.

Adding the Third Element of the Customer

So in going back to the supplier onboarding scenario for outsourcing companies, not only must supplier onboarding approvals be made by different members of the buying organization, but may likely need to be reviewed or audited by the customers for adherence to their internal controls and policies. Furthermore, in order for these types of framework to be successful, whether focused on services or manufacturing, outsourcing organizations must leverage supplier management platforms that can accommodate the flexibility of allowing their customers to take advantage of technology they either develop or implement.

In this regard, some of the outsourcing frameworks that we’ve worked with at HICX focused on outsourced relationships of MSPs.  These include areas such as facilities management, financial services, medical devices, and staffing/recruiting. While these companies may manage different types of categories or supplier types, what they all have in common is the outsourcing of day-to-day management responsibilities as a strategic method for improving operations of their customers.

Each of the organizations demonstrate this needed flexibility of not only integration to back office systems, but also in providing visibility back to their customers. As a result, in leveraging our platform, HICX’s solution provides a framework for building an organizational model needed to meet the complex third element of the customer by being able to –

  • Create hierarchies representing geographies, business functions and customers being utilized..
  • Link organizational units to maintain relationships to both outsourcing providers and their customers
  • Use reports, workflows, program definitions that can model the complex hierarchies for both organizational units and customers

Ultimately, adding the visibility to understand the unique dynamics in the supplier management platform provides these organizations a competitive advantage where their customers are able to yield improvements in consistency, quality, cost-control, speed, and compliance risk reduction through the extension of these supplier management capabilities.

In future blogs, we will consider some of the unique dynamics that MSPs and other outsourcing models need to consider for supplier management.

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