Good management of supplier relationships could result in increased productivity and improved profitability. So the discussion around the savings due to supplier information management naturally is a hot topic. But one question many practitioners have is, how much can I save with better supplier information management?
In looking at research, what you will find is that most organizations experience a real cost savings between 10 – 25% of total supply chain costs by managing them with proper supplier information management technology. But even here, savings rates quoted by analysts and practitioners on the savings can vary widely.
Due to this dilemma, one approach to assessing the value of a bespoke supplier information management platform is to baseline current estimated costs against projected costs. Often, these supplier-related activities are taken for granted, as status quo or seen as unamendable. Can the right technologies that provide better visibility for understanding supplier relationships and for collaborating with suppliers exist – and can they also streamline, and minimize, the internal efforts?
To establish the framework, consider the “efficiency improvements” or “estimated time” spent on core supplier activities and the impact of poor supplier information management. Most of these types of activities would relate directly to soft costs that when improved through supplier information management, can create process improvements and increased productivity. Some of these activities include time spent –
- 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 supplier
- Cost to reputation due to a supplier incident/event
The benefits supplier information management, however, also provide “hard cost savings” that demonstrate real and measurable costs or asset reduction. Consider measuring areas where due to lack of accessible supplier information or systems, that can trace directly to expenses on the P&L including –
- Cost of paper and materials being used for facilitating supplier activities
- Cost related to off-contract/maverick spend
- Missed early payment discounts or rebates
- Liabilities due to lack of knowledge from a lost contract
- 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 one of my favorites… “managing” suppliers that are no longer suppliers
But whether establishing hard or soft cost savings, effective supplier information management at its core is having the ability to establish a “master” of accurate supplier information that can be governed, verified and retrieved to provide a truer picture for all activities that involve them. In this regard, supplier information management tools, like those provided by HICX, create the means for which sourcing or procurement-related activities become more efficient and profit oriented, because the proper controls for governing supplier data and processes can be properly established.
Due to the importance of the topic to our customers, prospects and practitioners at large, we plan to dedicate our next several postings to the factors that organizations should use to estimate the value of supplier management. Further, shortly we will provide a white paper, with a guideline of measureable savings areas, that can be utilized to assess if it is time to consider an alternative to today’s “business as usual”.