Poor supplier management results in hundreds of billions of dollars being squandered annually. A recent Wharton study by Professor Marshall Fisher, covering the US Food Industry alone, estimates that over $30 billion are wasted annually due to ineffective supplier and supply chain challenges.This is why so many organizations are now moving quickly to embrace and improve their supplier management efforts – and you should, too.
Moreover, due to the increased risk in global supply chains, supplier management has extended beyond financial management, contract management, spend analysis and sourcing. Organizations today must address supplier management in the context of supplier onboarding, compliance, performance, and risk management.
So whether it’s the CPO, VP of Supply Chain or Chief Compliance Officer leading the charge on supplier management, lack of a harmonized supplier management approach through a solution designed for this purpose, creates inefficiencies that leads to additional costs. And the costs for the lack of harmonization are all over the map. But unfortunately, there is not just one metric that organizations can point to for how harmonization can improve performance, but these can range from the negative of not realizing potential contract values to positives of identified savings.
HICX Solutions allows you to begin automating the Supplier Information Management process by ensuring quick access to supplier information. Improvements include:
- Better insight and visibility into all aspects of supplier management
- Gap prevention – consistently stay compliant with changing requirements
- A tailored system to fit exact needs – with flexibility to remain relevant
- Accuracy and efficiency – find the right data quickly, regardless of location
- Auditability of any aspect of supplier information and supplier management processes
- Cycle time compression related to your most critical supplier management initiatives
- A single “source of truth” – avoid duplication of efforts and errors
Supplier management is also increasingly multifaceted and a fool’s errand without harmonization, especially given the exponential growth in supplier touch points and relationships. The parties involved include end users, sourcing, legal, compliance, finance, and many others.
To make it all work, systems needing accurate third party information have also multiplied, wasting valuable resources on manually entering information. As a result, stakeholders find themselves digging into multiple supplier systems to locate critical information. The result? No one has a holistic view of the supplier relationships and improving supplier management becomes an unattainable goal.
Your organization must get beyond:
- Using strategic resources required to perform tactical duties
- Maintaining supplier information within multiple systems, each potentially managing only one dimension of the supplier
- Moving too slowly to address new or changed initiatives – from CSR form changes to tracking new diversity classifications
- Generating errors from manual efforts and supplier data entry
As Winston Churchill said, “If you have ten thousand regulations you destroy all respect for the law.” The government, unfortunately not following this sound advice, is passing new standards and regulations faster than ever. Combined with internal pressures to mitigate reputational risk, the outcome is clear: supplier management is crucial, yet the time available to comply with new standards and regulations is diminishing. What is clear is that traditional systems were not built with the flexibility you now need to manage ever more dynamically changing supplier profiles.
A common battle cry of managers in today’s economy is “do more with less.” Unless intelligent systems were put in place to support this mandate, the outcome has likely been more manual efforts. It is therefore logical to assume that doing more with less without proper planning or added infrastructure investment only leads to more errors, and at a rapid pace. These errors are costly for organizations, whether in the form of supplier payments or double-managing the same supplier.
In practice, offloading some accountability of supplier management, coupled with the right amount of automation, can drive more money to the bottom line.
Lack of Actionable Information
Samuel Johnson quipped that, “Knowledge is of two kinds. We know a subject ourselves, or we know where we can find information upon it.” Because stakeholders cannot memorize all the knowledge they need, they need to know where to find it.
Unfortunately, the vast majority of people interacting with suppliers do not know where the information is, how to access it, how to interpret it, or what steps/processes to follow. The difficulties multiply with each additional internal system holding supplier content. Even worse, systems often do not contain needed information; so an individual has to collect it – resulting in a vicious cycle of information being stored where others can’t find it.
Your organization should be concerned about:
- Personnel who are unable to make proactive, timely decisions
- The depth of information available to your personnel
- Inability to syndicate information needed to the people, or systems required
- Lost savings, or increased risk, by not having enough, or the right, information
Many organizations are operating under a false set of expectations when it comes to their ability to accurately forecast supplier activity, compliance, and risk. Yet successful supplier management enables teams by pushing relevant information when needed. If, for example, a supplier changes its tax credentials like a IRS TIN or EU VAT number, it would be a leading indicator that that supplier may have changed ownership or structure, and that specific stakeholders within the buying organization need to be notified. Without the ability to proactively syndicate actionable information to individuals within an organization, strategic resources are handcuffed, risk levels increased, and opportunities lost.
Processes, needs, and controls vary from corporation to corporation, and across the organizational matrix. Defining and harmonizing these differences is time consuming and potentially impossible without improving supplier management. No wonder many corporations implement multiple ERP systems and ERP implementations often spending two to four times the cost of the software. Supply base management cannot be siloed in such a manner. Yet today, companies still require flexibility in systems to support corporate/global supplier management needs tailored to their individual operating environments. It’s a balancing act – but one that can be achieved.
You should be concerned about:
- Suppliers being enabled without the proper oversight
- Supplier changes without internal notification
- Inability to audit all aspects of the supplier relationship
- Inability to harmonize corporate, regional, and local policies and procedures across the organization
- Difficulty notifying and involving key organizational stakeholders on supplier decisions
Information collection can be done with a physical or web form. Automated information collection requires additional levels of intelligence (for example, do I know who should complete this form?). Supplier management based on “best practices” requires intelligence that not only triggers events, starts processes, tracks changes, handles exceptions, and notifies stakeholders – but also collects information and supports audits.
Compliance / Risk
The coordination of supplier information and compliance requires the involvement of many parties, data elements, processes, defined mitigation/escalation plans, and reporting. ERP systems were not designed to address these needs.
You should be concerned with:
- Insufficient internal controls to drive corporate compliance, including segregation of duties, collection of tax information, collection and verification of insurance certificates, NDAs
- Inability to quickly comply with new regulations and compliance needs
- Fines or reputational damage associated with noncompliance
- Lack of visibility to risk across the supply base, and accounting for all risk dimensions
- Slow responses to potential supplier risks or compliance issues
Improving supplier management tool that will address all of these needs. Supplier management conformity is set by multiple parties:
- Corporate standards (e.g., certificate of insurance, NDAs, CSR agreement)
- Government standards (e.g., W8/W9/1099 survey collection, TIN validation, FCPA/anti-bribery surveys, ITAR and EAR, OFAC/debarment checks, REACH/RoHS)
- Sourcing requirements (e.g., utilizing preferred suppliers)
- Finance (e.g., accounts payable needs, payment terms, bank information)
- Supply chain (e.g., site visits and audits)
- IT (e.g., SAS 70 level II audits, Cloud Trust)
- And many more
Risk cannot be managed in a bubble – organizations experience supplier risk from all directions. For example:
- Mattel recalled over 967,000 toys due to supplier use of lead paint
- High-tech manufacturers found themselves paying significantly higher prices due to second-tier suppliers going out of business; in 2009, almost 25% of US automotive suppliers went bankrupt, forcing automotive manufacturers to realign their supply chain
- Volcanic ash from the eruption in Iceland grounded nearly all air transportation in Europe
- Shipping ports went on strike, forcing deliveries to alternative locations
- Floods in Thailand created a shortage of hard disk drives, affecting computer and digital camera manufacturers
- Pirates regularly commandeer ships, at the cost of $12 billion annually
D&B SER scores simply cannot prophesy the totality of risk companies face. Supplier risk involves many dimensions and managing it requires supplier management approaches that provide:
- Familiarity with the supplier (e.g., performance scorecards)
- Internally or externally originated data
- A blend of quantitative (credit score, short/late ships) and qualitative attributes
- Involvement of proper stakeholders
- Ability to define, quantify, and report on risk, and the appropriate risk mitigation plans.
Without a holistic program, you cannot accurately predict your next supply chain disruption.
Collecting all aspects of risk on all your suppliers can become a “boil the ocean” activity which no company can afford. The challenge comes down to effective business continuity based on segmenting suppliers and monitoring risk differently.
The good news? Technology-enabled risk management solutions automate this process and allow for organizations to manage risk by exception.
Strategic sourcing might generate savings, but such rewards often evaporate before they are realized.
One of the challenges is that disparate systems create duplicate supplier records and fractured parent-child linkages. Strategic sourcing has a choice: gather enough information to be “directionally accurate” and hope that it is enough in negotiations, or expend valuable time collecting, merging, and cleaning supplier information in preparation for a full sourcing wave. Today’s most effective supplier management programs have all the information needed, ensuring that information is clean and available to the sourcing team.
You should be concerned with:
- Inability to easily change payment terms or request additional payment discounts
- Strategic sourcing that lacks the insight to leverage your purchasing power
- Permitting spend outside preferred suppliers
Finance departments often attempt to modify payment terms in order to optimize working capital. Without an efficient method to communicate with – and get agreement from – the supplier, these initiatives are only half effective. Research shows that many industries offer additional discounts for early payment. On average, transportation services will drop prices 1.6% for payment within 10 days. Real estate services will forego 0.9%. Treasurers are seeing average savings across the supply base of 0.5% and push for early payment discounts where they haven’t already been negotiated.
Yet without effective methods to communicate with suppliers, these programs rarely gain momentum beyond a handful of larger suppliers, often those in the least need of working capital.
Improving Supplier Information Management with HICX Solutions’ SIM solution provides organizations like yours a new way to deal with challenges related to supplier information, compliance, performance and risk. Our supplier management solutions give you the ability to:
Customize the system to fit your environment
- Generate surveys, workflows, reports, and integration points
- Deploy across an entire enterprise quickly, with the flexibility to add region and location-specific criteria
- Capitalize on deep internal and supplier hierarchies, including legal company, geographical units, organizational units, business functions, location functions, and business relationships
- Map to procurement process sophistication levels (e.g., strategic sourcing, vendor file management and audit/recovery, supply risk management) with the right level of support based on maturity
Collect information on suppliers, and more
- Deploy unlimited, and flexible, initiatives based on your exact requirements
- Use dynamic field permissions and validation rules
- Assess information required by category and commodity
- Enable supplier self-service, or “internally-handled” suppliers
- Allow third-party auditor access to documents, forms, and surveys
- Segment and manage suppliers differently based on status (e.g., active vs. potential)
- Store and manage documents such as contracts and insurance certificates with full check-in, check-out and revision control as well as expiration reminders
- Collect information from downstream systems for a holistic view of supplier spend, payment dates, and late shipments
Capitalize on automated workflows and approvals
- Build and deploy workflows from a graphical interface
- Leverage complex workflows that model your compliance needs, whether dynamic routing, parallel, serial, to individual, or to role
- Ensure that process/workflow changes do not disrupt work in progress
- Extend workflows locally to meet process variations
Communicate with all necessary stakeholders
- Use surveys and forms to collect information from both internal stakeholders and suppliers
- Notify individuals by alerts and emails when action is required
- Escalate issues as needed
- Communicate content- and requirements-based business relationships, versus a “one size fits all” communication
Integrate with relevant systems
- Syndicate relevant data to downstream and/or upstream systems
- Leverage standard punch-outs for key information – OFAC/Debarment, IBAN, TIN match
- Incorporate Dun & Bradstreet information – standardized addresses, corporate linkages, commodity codes, risk scores, and corporate summaries
Gain insight into all aspects of your supplier relationships
- Review your most critical indicators in concise dashboards tailored to your exact needs
- Leverage standard reports and ad-hoc reports that access all captured supplier information
- Export data for use within existing BI (business intelligence) tools
- Search via structured criteria or use full-text searches across all supplier information – including within documents and dynamic fields
- Audit any aspect of the information: who made changes , from what, and when
Featured Case Study
A large global pharmaceutical manufacturer, with 30 ERP systems and 800,000+ suppliers, struggled with onboarding and compliance issues. With HICX Solutions they were able to centralize and enrich their supplier and spend data, run risk assessments, and ensure compliance. By streamlining their process and gaining visibility, they were able to recover over $1,000,000 in hard dollar savings annually.
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