October 30, 2013

The Exponential Supplier View

Leadership and business vision. Road to successHow do you define a supplier? The answer is not as simple as it would seem – especially if considering the “relativity” of that supplier to the stakeholder’s perspective (see The Supplier Management Relativity Principle).

If, for example, I am the Commodity Manager over servers, and I purchase these servers from IBM, that relationship is my defined “supplier”, where someone utilizing IBM’s consulting services would consider that relationship a “supplier”. And… Strategic Sourcing may consider the combined relationships a “supplier”. Each has their own perspective and each has to manage their “supplier” (though under one umbrella) appropriately.

Imagine the permutations that ERP systems can get riddled with:

  • By legal entity (e.g., child/subsidiary)
  • By buying organization (e.g., divisions, business unit, locations, plant, country, etc.)
  • By commodity
  • By tax ID
  • By payment location, or bank account
  • By customer

Let alone supplier duplicates and/or multiple ERP systems.

The burden of managing this supplier information is heavy – and by not accounting for the organizational, supplier, and relationship views, variations are needed to accommodate for actual day-to-day data usage – and the casualty is efficiency.

Accounts Payable cannot leverage a single supplier master and efficiently pay suppliers; Strategic Sourcing cannot easily ascertain what suppliers are used to further leverage their spend; and, the list goes on.

Billy Bob’s Window Washing Company may be a simple supplier view, but today’s supply chain is growing ever more complex and today’s supplier relationship(s) are becoming layers of the same supplier.

So, how does one tackle this exponentially growing problem?

To simplify for the sake of blog brevity:

  • Vision
  • Governance
  • Process
  • System

Vision: Chances are that if you have this problem, you have a large and complex organization (business units, locations, systems, etc.) – and the reality is that an efficient supplier master cannot be created without “vision”. This incorporates an understanding, company-wide, of the objectives for the supplier master, and having executive sponsorship.

Governance: Do we really need 100 versions of IBM? When does a supplier get added, and in what form? These decisions have to be made and, therefore, a governance board and data stewardship organization must exist. They define standards and definitions, survivorship rules, and what/how duplicates should exist. Without governance over the supplier data… for lack of a better way of stating it… “if you keep doing what you’ve been doing, you’ll keep getting what you’ve got” (usually a mess).

Process: It really does seem like every conversation these days either has the word “process” or “workflow” in it. So why change now? In order to ensure standards are followed, a process has to be enforced. Whether it is through identifying duplicates, the approvals needed to consolidate, change requests, or attaching a supplier to an existing record, systems ensure the right sequence of activities are followed.

System: The system that manages the supplier master, whether an ERP instance or a Supplier Information Management system, needs to be accountable for collecting, maintaining, and syndicating the supplier information. This includes running matching strategies, match/merge, governance oversight, sending master data to downstream systems, and providing the appropriate “views” of the supplier. Going backwards this means that the system must understand the variations of a supplier, such as:

  • A supplier “family” view (an aggregation of suppliers into family trees, or relationships);
  • A “supplier” view (a single view of the supplier from the supplier’s perspective);
  • An internal “organizational” view (a supplier “relationship” view, such as the two IBM examples above); and,
  • A “system” view (a view which has been translated into appropriate record structure, per downstream system).

Side note: Without a very dynamic, flexible data model, the “system” will inevitably struggle in trying to accommodate for these various views.

All of these, working in harmony, empower your organization to gain insight into your supply base, while further finding efficiencies within your organization.

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