October 28, 2013

The Supplier Management Relativity Principle

Long before Albert Einstein changed our world through special relativity and general relativity, Galileo Galilei articulated the first relativity principle back in 1632. Many take for granted the results, such as how GPS systems can track our exact position on the Earth, within mere feet – and even while in motion (us, the earth, our solar system, etc.). The reality is that our perception, and the world around us, is relative to our position and viewpoint.

What about supplier management?

The management of suppliers is not handled in a bubble – and the stakeholders of what, and how, suppliers are managed affect all facets of an organization. In fact, it may be difficult to name another focus area that has as much impact on an organization and splits across such a wide range of stakeholders.

Take the following as an example (and, yes, this just scratches the surface):

Role

Objective

Pain/Risk

Need

Treasurer Monetary Policy Working Capital not optimized Extend payment terms; Maximize early payment discounts
Accounts Payable Pay Suppliers Errors (banking information, overpayment); Compliance (tax, etc.); Capturing discounts; Inefficiencies (duplicate supplier records); AP fraud Clean and accurate supplier master; ensure compliance; efficient method to handle AP helpdesk (e.g., where is my payment?)
Strategic Sourcing Leverage spend power with the “right” suppliers Off-contract/maverick spend; Benefits/Rebates not captured Oversight into supplier adds; Visibility into non-compliance; Ensure discounts are captured; Scorecards to ensure “right” suppliers are used.
Category Manager Day-to-day supplier management Surprises; No supplier improvements, or improvements which are not leveraged Insight (e.g., risk); Efficiencies (e.g., communication); Scorecarding; Ability to drive performance improvements
Procurement IT Maintain/Improve procurement systems Process inefficiencies; Data inefficiencies Improve operational efficiencies (e.g., insight, data quality, processes, integration, etc.)
Small Business Liaison Officer Meet government contract requirements Loss of contract; Fines Identify small businesses (note: and/or HUBZone, Vet, etc.); Collect affidavits
Supplier Diversity Optimize diverse supplier usage Negative press and/or local roadblocks due to insufficient diverse spend; No directory for sourcing to leverage Identify and qualify diversity suppliers; Provide “yellow pages” of capable suppliers; Track and report on progress
Chief Financial Officer Maximize shareholder value Cost Everything above and below
Information Technology Select and manage internal systems Inefficiencies and/or ineffective data governance, integrations, processes, etc. Optimize data governance and enable effective processes, while having the flexibility to adapt to organizational/system changes
Supply Chain Ensure supply is available as needed Disruption; Compliance (e.g., REACH, RoHS, etc.) Increased insight to mitigate risk (e.g., scorecards, 3rd party data, incident alerts, compliance, costs, etc.)
Manufacturing Efficient, and effective, manufacturing Disruption affecting sales; Costs (e.g., supplier, operational, etc.) As above
Compliance Ensure compliance, whether internally mandated (e.g. social responsibility) or externally mandated (e.g., FCPA, SOX, etc.) Government fines; Reputational risk Visibility, control, and auditability of compliance initiatives
Legal Protect corporate interests Liability Contract and legal insight across organizational functions
Procurement Excellence Continuous improvement Inability to affect cross-functional change Non-siloed solutions that drive cross-functional procurement/supply chain improvements
Sales Forecastable sales; Sales growth Supply disruption; Product quality; Being out of compliance with customer Whatever others need in order to do their jobs effectively
The “Customer” Poor quality; Price As above

 

And… it’s all intertwined. How can the Treasurer expect to optimize payment terms, if Sourcing cannot effectively transfer that knowledge to AP? How can AP expect to capture an early payment discount if they don’t have a term, or it’s hidden within 20 record versions of the same company in the ERP system? Ultimately, there are many stakeholders as it relates to supplier information – and each possesses their own relative perspective. We haven’t even touched, yet, on the complexity of “a supplier” (e.g., by relationship, by country, by buying organization, by payment location, etc.), which adds another dimension to the perspective.

The complexity is great and the urgency is here; therefore, the myopic approach of the past has passed away and leading organizations realize that, in order to thrive, an understanding and active collaboration is needed across all business functions.Traditional solutions (e.g., ERP) haven’t been able to meet wide-ranging supplier management needs, and niche solutions (e.g., contract management, scorecarding, catalog management, diversity, etc.) have assisted as long as they could to “plug the hole”; however, a new era of supplier management solutions has risen to overcome these hurdles. If your organization still manages supplier information in a bubble, the time is now to bring the stakeholders together, create a collective “to be” vision, acquire appropriate technology, and embark on the journey towards effective, organization-wide supplier management.

Note: As you consider your options of “business as usual” versus “change”, one of our customers shared with us their ROI model and provided us permission to share it with others. It is not full of fake numbers (e.g., on average you can save X on supplier management per supplier), as everyone’s environment is different. It does, though offer savings areas, as well as placeholders to enter your own estimates. If you are interested in receiving a copy, please go to http://www.hicxsolutions.com/about-us/contact-whitepaper/, click on “Supplier Information Management” and request the ROI model in the comments section.

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by Costas Xyloyiannis

Chairman & CEO

With HICX since its formation in 2004, Konstantinos has been instrumental in building it into a leading Supply Base Management company. He is responsible for setting the company’s strategic direction as well as overseeing the growth and expansion, strategy, planning, execution and overall performance of the company.
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