Category Archives: Supplier Management

Suppliers in the Solution Economy are NOT Suppliers in the Industrial Economy

Given that, in today’s Solution Economy, a company that suppliers a customer with a product or service often outsources the production of that product, or the implementation of the service, to a third party, the company needs to thoroughly understand its suppliers’ strengths and weaknesses to select the right supplier to manufacture that product or provide the service to the end consumer.

This means that, where its suppliers are concerned, a company needs to have a much better understanding of its suppliers than it did in the industrial economy. This means that a company has to start by:

  • Asking different questions, much more often
  • Observing the supplier directly

The questions need to move away from “do you have the facilities to make this product” to “what value-add do you add in the term of usability, reliability, or warranty support that we can use to meet the needs and want of our customers” and the questions have to be asked every time the customer needs change, not just once every three years when the category is resourced. You may not be able to change suppliers or alter the contract, but if you put in continual improvement and collaborative design clauses, you can at least make sure that subsequent iterations improve in the right direction. Similarly, on the service front, the focus should move from “do you provide service X” to “give us examples of how your delivery of service X met the following customer values and led to higher satisfaction ratings”.

Similarly, it’s not enough to just do a plant visit during the supplier qualification phase. There needs to be continual observation and interaction through the full contract life-cycle to make sure that the supplier undertakes continual improvement efforts, that issues are quickly identified and brought to your attention if they can not be quickly resolved, and that the level of professionalism and attention paid to you does not decrease over time as new customers enter the pipeline.

In other words, it’s not just send out an RFQ, select a supplier, have the product shipped to the end consumer … it’s make sure it’s the right product that meet’s the consumers needs and gets there at the right time with the right level of usability and reliability.

You Should Never Pay Your Supplier Late … Unless …

You can confirm that paying your supplier late is actually the right thing to do in the situation at hand.

There’s a reason that SI has been saying since day one that you should never pay a supplier late, and stands by that as a general rule, but every rule has an exception, and since there is a lot of economic stress as a result of the trade war (and other global political messes), and there will be times where smaller companies cannot always pay every invoice on time to the dot, SI is going to repeat the one, and only one, time you can pay a supplier late — and that’s when, and only when the particular circumstance at hand is such that it hurts the supplier less than it hurts you.

Furthermore, this isn’t a carte blanche to delay paying the invoice indefinitely, it’s special permission to avoid paying just until the funds come in to pay it. If you’re short because you’re waiting for your biggest customer to pay their large invoice, and you can’t pay everyone, then you can delay the invoices where it will hurt the suppliers the least to delay … but ONLY until the payment comes in.

In other words, if you have 1M in invoices, but only 800K, and you have invoices to (a) Mom and Pop’s Catering Services for the large event you just held; (b) the local meeting space you use every month; (c) the contingent staffing provider for seasonal workers you need; and (d) Big Computer Co for your 500L software renewal, where they won’t notice you’re late for at least 30 days, and they’ll just charge you 6% annual interest if they know you can pay late. So, who do you pay late? The answer should be obvious — (d).

Mom and Pop’s are probably surviving invoice to invoice, and any late payment seriously hurts their business. The contingent staffing provider might be able to afford it, but you don’t want to risk it as you need their staff and you can’t risk them having to lay those staff off because of cashflow issues. The local meeting space could probably swing at least a partial late payment, but they’re local and you need the preferred customer status they’ll give you as local if you pay on time. On the other hand, Microsoft has about 126 Billion in cash and equivalents, and can afford the late payment. And if you have to pay a 0.5% penalty, it’s way less than the heartache your other suppliers could experience if you don’t pay on time.

Remember, there are two reasons you always want to pay your suppliers on time. The first is to keep them financially sound. The second is to reduce your end to end supply chain cost. Just like you, your suppliers depend on your business and need that cash to buy raw materials, fund overhead costs, and, most importantly, pay their workers. If the supplier has to borrow money to buy those raw materials, fund overhead, or pay workers, it’s going to cost that supplier — and if their credit rating is less than yours, they’re not going to get a good rate — and, in fact, they might get a very bad rate of 20% or more … a lot less than the 6% you might be charged by Microsoft. And you can guess what’s going to happen down the road if they have to borrow at 20% interest for 3 months. That’s right, your costs are going up 5% on renewal. (And if the supplier has to layoff, and then bring people back later due to cash flow, that costs the, and you, even more.)

And what if a few days turns into a few weeks and then a few months and the supplier goes out of business just before they ship your big batch of products that take two months to make, then you’re not only out a supplier, you’re out products that you planned, which puts you out revenue, which puts you in an even worse situation.

So while it is sometimes okay to pay a supplier late if the situation is such that it hurts them less than it hurts you, it’s not okay to cart blanche pay them late on every invoice or delay payment even a day more than necessary.

So as a general rule, never pay a supplier late.

SIM? Is It Old News or a Shiny New Pair of Shoes? Part III

As per our last two posts, SIM (Supplier Information Management) is a very mature and stable technology with a large number of software vendors not only providing the tools and best practices to manage supplier life-cycles, but to manage risk, compliance, receivables, and even spend repositories for spend management. And now that every suite vendor has built, or acquired it, the technology is a commodity in the Supply Management Space, and an acquisition of the typical implementation is not likely to get baby that new pair of shoes anytime soon. Especially since most of these platforms use static data models, fixed workflows, and have little support for supply chain visibility beyond tier 1.

More specifically, as per our last post, what is needed is a SIM tool that allows for a truly dynamic data model, adaptable workflow, and a supply chain organization map that could truly bring a new wave of value to a modern Supply Management organization.

And while many of the classic platforms do not have this capability, as well as many of the best-of-breed platforms, some of the newer, and more innovative, platforms are going down this path.

For example, Ivalua, one of the few suite providers built from the ground up on a single code-base, has spent years building a powerful workflow engine that underlies their entire platform and that can be configured to support just about any supplier on-boarding process you can imagine — as well as integrate just about any data source you want to augment the profiles through its end-user data source integration capability.

Then we have SourceMap, which allows you to map your supply chain down to the source raw material, collect data up and down the chain, and dynamically alter it as raw material providers entered the chain or dropped off. And you can visualize it, create risk models that work on propagated data up and down the chain, and even estimate the impact of a delay or disruption.

And, more importantly, we have HICX, the little vendor that could, did, and keeps on trucking. Fully dynamic, adaptable data model that can even be configured into your own workflows and allow you to hang sub-tier supplier information off of supplier nodes. A powerful UI which can be heavily customized, and more innovations coming soon.

In other words, while classic SIM is old-tech and indistinguishable between about two dozen providers, modern SIM is beginning to undergo a resurgence, and when we finally get open networks, centralized, validated data, and community intelligence, we’ll see a new level of value ooze from these solutions.

So choose wisely, and your solution may just grow with you (instead of taking you back to 2009 when we had a feeling things would get better, but didn’t).

SIM? Is It Old News or a Shiny New Pair of Shoes? Part II (Updated)

As per our last post, SIM (Supplier Information Management) is a very mature and stable technology with a large number of software vendors not only providing the tools and best practices to manage supplier life-cycles, but to manage risk, compliance, receivables, and even spend repositories for spend management. And now that every suite vendor has built, or acquired it, the technology is almost a commodity in the Supply Management Space, and an acquisition thereof is not likely to get baby that new pair of shoes anytime soon. Or is it?

As great as they are, most SIM products —- stand alone best-of-breed or integrated suite offerings, have at least one weakness —- and often two. In particular, the data model and the workflow. Just like early spend analysis solutions were often tied to one, rigid, UNSPSC-based data model, most current SIM solutions are also tied to one, rather rigid, data model. In addition, most of those solutions with some SLM (Supplier Lifecycle Management) also have rigid workflows.

This worked well when business processes were predictable and stable and corresponded to products with long life-spans. But the times they-have-a-changed. These days, product life-spans are measured in quarters, and not years, if we are lucky. Associated processes change to not only accommodate the new product demands but to adapt to new technologies and new business requirements. If the workflow can’t adapt, the capability, and overall usefulness, of the tool is limited.

A SIM product that could not only allow a user to define, and redefine, data models as necessary but define, and redefine, workflows as necessary would offer more value than current SIM platforms. And if that product could also maintain full audit trails, which not only track data changes but model and workflow changes, and insure that old records and workflows can still be seamlessly accessed when the data model or workflow changes, then that would be even better.

And if that SIM product went even further and allowed for dynamic organizational, supply base, and user-defined hierarchies, that would be icing on the cake. Supply Chains are not boring because they are not static. They are constantly changing. The supply chain can not only change from product to product, but batch to batch as a primary raw material or part supplier runs out of material, becomes unreachable due to a political or natural disaster, or simply gets greedy and forces the higher tier supplier to find a new source. A good SIM solution will allow the supply chain map to evolve in real-time as the supply chain evolves. Moreover, with acquisitions, mergers, and spin-offs being the normal modus operandi for many businesses, a SIM solution that can easily adapt the organizational data model is also required. Finally, for maximum productivity, a user needs to be able to maintain their own view of the supply chain, back and front, relevant to them. They need to maintain their view of the relevant multi-tier supply base and the relevant hierarchies in their organization that they have to report to and serve.

In other words, a SIM tool that allowed for a truly dynamic data model, workflow, and supply chain organization map could bring a new wave of value to a modern Supply Management organization and the individual with the foresight to acquire such a tool might just get baby a new set of shoes. But is this available? And is it becoming common place?

SIM? Is It Old News or a Shiny New Pair of Shoes? Part I (Updated)

Supplier Information Management, also known as SIM (but which has almost nothing to do with your Subscriber Identity Module card in your cell phone, which is what you probably think of when you hear SIM), is not new. The early leader in this space, Aravo, which boasted the likes of GE and CISCO as clients, was formed in 2000 and followed not only by a slew of companies trying to be best of breed in SIM (including AECSoft, acquired by SciQuest which is now Jaggaer; Hiperos, now owed by Coupa; and Lavante; now owned by PRGX to name a few) but by a slew of suite vendors that began to implement enhanced SIM into their platforms (including Ariba, Iasta [now Determine], and Zycus).

And most of the basic features are now commodity. Try to find a vendor that sells SIM that doesn’t track all headquarter location, financial, core product, service, insurance, and third party risk information associated with a tier 1 supplier. Most of the good vendors also track third party credentials, compliance information against all relevant laws and directives, internal performance metrics and third party ratings, and even integration with third party supplier directories, databases, and or networks.

And the uses are well known.

  • Where are the bulk of my suppliers located?
  • What is the financial health (risk score) of my top 100 suppliers?
  • Are any of my products out of compliance with regulations in one or more countries?
  • Do all of my suppliers have their relevant insurance certificates up to date?
  • Who are my riskiest suppliers?
  • Have all of my suppliers verified their primary contacts in the last six months?

And the more mature companies, to try and maintain an edge, maintain their customer base, and expand into new companies and additional verticals have started to integrate additional, and related, functionality. Aravo evolved into a full Supplier Lifecycle Management solution that balanced compliance, performance, and risk management. Hiperos, before its acquisition by Opus Global and then Coupa, focussed on Third Party Management and on Compliance and Risk Management in particular. For example, their compliance management solutions included code of conduct, diversity management, insurance attestation, social accountability, and sustainability. Lavante focussed on on-boarding and integrating SIM with audit recovery services and advanced to the point where it was acquired by the leading audit recovery services provider, PRGX.

When all is said and done, SIM seems like a very mature space that is very old news. Typically when a technology gets to a point that all the suite vendors are just gobbling up what’s left, there’s nothing new. And betting on it definitely musters the image of an old gambler clutching dice in one hand and his last dollar in the other mumbling “baby needs a new pair of shoes“. But is it a bet you would lose?