Category Archives: Supplier Management

On the Second Day of X-Mas (Market Intelligence)

On the second day of X-Mas
my blogger gave to me
two boxing gloves
and a lesson in strategy.

In the Autumn issue of CPO Agenda, you will find the article “Raw nerve” by Richard May which indicates that sometimes a tough response is required when suppliers demand raw material price increases. Sometimes there are reasonable justifications for the request, but sometimes the justifications are not warranted. If you remember my post on The Internet & the Purchasing Knowledge Revolution, or Charles’ recent insights on Supply Excellence [WayBackMachine] on “Caveat Emptor: Economic Indices Could Be Misleading You” and “Supply Market Assessment 101” you might recall that a single commodity index alone does not justify a price increase.

You need to know where the supplier is buying from, the relevant cost indices of the raw materials in those regions, the relevant exchange rate between your supplier’s supplier and your supplier, it’s expected stability, the relevant exchange rate between your supplier and you, and it’s expected stability. An increase in the steel index in the U.S. is irrelevant if your supplier buys its steel in China. Also, the cost increase in a commodity can often be offset by a recent currency devaluation. Therefore, the first defense you have against a commodity increase is a deep understanding of your should-cost structure, including that of your supplier. It’s your first boxing glove.

Your second boxing glove is a good strategic sourcing process that you can use to find an alternative source of supply, enabled by a cross-functional team that will allow you to quickly and efficiently work through the process. If there are genuine reasons for a cost increase, but your supplier refuses to collaborate to keep costs down for both parties, sometimes you need to find an alternate source of supply.

Supplier Relationship Management

Another presentation at the Fourth Annual International Symposium on Supply Chain Management that tackled an important topic was a presentation on Vendor Relationship Management by Tom Hawkett of Connect4Growth.

Supplier Relationship Management is very important in a successful supply chain. When you consider the recent entrenchment of global / low cost country sourcing, the unreasonably high focus on spend management (a topic for another post), that many ERP investments are not delivering on promises (as most companies can only afford limited roll outs and most systems do not come with e-Procurement or e-Sourcing capabilities of any significance), and that the viewpoint prevalent in many organizations still seems to be “Procurement, What Have You Done For Me Lately?“, the need for excellence is paramount. This can only happen if you are able to consistently get the right products, of the right quality, at the right time, and at the right price. This is not likely to happen consistently and without incidence if you do not have good relationships with your suppliers.

So how does supplier relationship management help you?

  • Increased Productivity / Improved Performance
  • Improved Service Levels, Internally & Externally
  • Better collaboration with, and management of, providers
  • Reduced supplier selection risk
  • Utilization of best practices and governance structures
  • Reduced Decision Time
  • Cost Savings

No surprises here. So why do so many companies often have problems? Likely because they are faced with one or more of the following challenges:

  • Never enough time
  • Inundated by supplier contacts
  • Everyone is a supplier manager
  • Technology allows more stakeholders
  • Evaluation processes are longer today
  • Difficulty communicating vendor experience across the organization

So what’s the solution? A well designed, accessible, and easy to use Supplier Relationship Management (SRM) or Vendor Relationship Management (VRM) solution that supports and implements best practices appropriate to your organization. A good solution will provide the following capabilities to various degrees:

  • establish benchmarks and goals
  • ensure deliveries match payments
  • flag potential problems
  • expose maverick buying
  • encourage communication
  • track accountability
  • speed up information collection
  • enable apples-to-apples comparisons and reporting
  • provide a framework for partnerships
  • document experience in a knowledge store accessible by the organization
  • reduce decision times and ensure mistakes are captured and not repeated

Where can you find one? A number of vendors, including Connect4Growth, provide such solutions. Some examples are Vinimaya (rebranded Aquiire, acquired by Coupa), Apexon (acquired and merged with Infostretch), and SAP. In addition, some e-Sourcing suite vendors, such as Procuri (acquired by Ariba, acquired by SAP), VerticalNet (acquired by BravoSolution, acquired by Jaggaer), and Ariba provide these capabilities in their e-Sourcing suites. Now, it’s true that each of these solutions are different, and attack different aspects of SRM/VRM, but the best of breed solutions are still infinitely better than not having a solution. And since these systems are far from rocket science, even though they can rocket you to success, if you don’t have one, you should consider getting one. After all, you probably already have a CRM (Customer Relationship Management) system – are not your suppliers just as important as your customers?

The Need for Supplier Relationship Management Education

Capgemini recently announced some of the findings of its most recent research into supplier relationship management in a news release released last month. The findings demonstrated that a significant disconnect still exists in the state of the art of purchasing systems and the state of the practice. Although it found that businesses could expect to save 10-25% on their purchasing costs with an effective systems, it found that less than 50% of SRM users use the application to track orders and only 7% of purchasers use the reporting functions.

The study, which looked at priorities for global Chief Purchasing Officers (CPOs) from six different European countries in a wide cross-section of fields, also found that although many purchasers use spend information to prepare contracts, less than 40% can access the spend information in their SRM application and 30% said that they would need training to use the SRM application effectively.

Although neither the news release, nor the subsequent write-up on the European Leaders Network, discussed the issue, this indicates to me that business are still overlooking one of the key elements to success with any business system – user education.

Supplier Relationship Management, defined as creating an all-encompassing strategy where suppliers connect to your business in real-time, enabling you to gain control of your companies’ direct and indirect spend, transforming suppliers into business partners and extending applications to create value, can be greatly enhanced when well designed systems are used (providers include Apexon [acquired and merged with Infostretch in 2022], SAP, and Vinimaya [rebranded Aquiire and acquired by Coupa]), but only if the users know how to use the system effectively. Make sure extensive training is included as part of your deployment plan and you may find that you are one of the top performing companies achieving a 20% plus return.

Apexon and Performance Visibility

I’ve been blogging a lot about visibility lately and mentioning Apexon (acquired and merged with Infostretch in 2022) rather frequently even though I’m sure most of you haven’t heard about this little company or what they do. Last week I had the opportunity to sit down with Kevin Brooks (an occasional guest blogger here on Sourcing Innovation, in other words, his commentary on The Future of Sourcing is not slated to be his last post) and discuss where Apexon was, where it was going, how Apexon goes beyond spend visibility to performance visibility, and how this will eventually translate into actionable intelligence. (A topic I’ll be diving into in the future.)

Whereas most visibility solution providers (like Zycus, Procuri TrueSource [Procuri was acquired by Ariba, which was acquired by SAP] and biq [which was acquired by Opera Solutions, which rebranded ElectrifAI]) focus on spend visibility, or the determination of how much you spend on each of your suppliers, Apexon focuses on performance visibility, or the determination of how each supplier you are spending on is performing. Spend visibility solutions slice and dice on dollars, performance visibility solutions slice and dice on performance metrics – and the good ones slice and dice on the performance metrics of your choosing .

At this point, you’re probably asking are not all visibility providers equal, since all they do is aggregate, slice, and dice raw data ? Technically, they are very similar, but functionally they are quite distinct. The difference lies in the presentation, reporting, and intelligence they provide. Spend visibility solutions are configured to slice and dice on dollars, the data they extract from your underlying systems is your transactional data, and the drill down reports they provide are all pivoted around spend. Performance visibility solutions are custom configured by you to slice and dice on the metrics you track, the data they extract is the data relevant to your metrics, and the drill down reports they provide are all pivoted around metrics. Could one system do both? Yes. Do any current systems do both well? In my view, not really. (But I’m up for a conversation and a demo if anyone disagrees with me!)

However, to truly be useful to you, a system should also provide actionable intelligence. Dashboards that tell you where you are performing well, where you are performing poorly, and provide you with alternatives to improve these poor situations. Although still a young product, with 2.5 slated for release in the near future, this is where Apexon is starting to break away from the pack. Dashboards let you view your performance relative to your key metrics, and then the system lets you drill down into the root causes of poor performance and the root enablers of good performance. Comparison reports can then be used to determine possible solutions – such as shifting supply to a better performing supplier or shifting certain components to different manufacturing lines.

If supply chain performance is a concern for you, and it should be, I’d say it’s worth checking out the solution, especially if you are a traditional manufacturer, particularly in the automotive, aerospace, defense sectors, since Apexon has a strong client base in these sectors that have helped shape the solution since day one. Furthermore, since the solution is a 100% on-demand solution through your browser, the effort required to test-drive it is minimal. The solution works on a push model – at regular intervals (which can occur as frequently or infrequently as you desire), you push updated data to it, and it slices and dices that data on your metrics to give you the intelligence you need to improve your operations.

Is it all it can be? No, I think it can improve in future versions – but more importantly, since Apexon is intent on building its roadmap from customer feedback, I think it will get there. More importantly, you don’t have a lot of choices, most are new offerings, some companies are not as eager to work with their customers to improve the solution, and visibility is an area you can not ignore. Make sure it’s on your list of candidates, and if you’re nearby, check them out at one of their upcoming executive breakfast series in Milwaukee, Chicago, and Detroit (on October 17, 18, and 19). And keep an eye on Sourcing Innovation and Spend Matters – if he’s not traveling, I’d guess that you can bank on Jason hiding out in the back row of the windy city presentation, pounding out notes on his Dell and posting them to you hot off the wire.

Lack of Visibility Kills

I know it’s Saturday, and I know you’re probably expecting me to talk about something along the lines of Flaming Laptops since I usually take the day off from sourcing, but something happened this week that not only cost many large retailers a significant amount of money, but killed someone. If you haven’t figured it out yet, I’m referring to the “E. coli outbreak that has hit 20 states” (so far) (CNN Health, Sep 15, 2006) as a result of tainted spinach.

Even though Wal-Mart Stores Inc., Safeway Inc., SuperValue Inc., and other major grocery chains stopped selling spinach and removed it from their shelves and salad bars, the problem is not over – since investigators still are not sure about the source of the problem, which they believe to be somewhere in California’s Monterey County, which grows more than half of the nation’s spinach crop.

The CNN article seems to suggest that the nation’s “fractured network” of food safety agencies is the problem – that they do not “communicate” well enough, implying that one of the agencies, or someone at one of the agencies, did not do their job. I do not think that is the problem. As far as I’m concerned, the problem lies with Wal-Mart, Safeway, SuperValue, and every other chain that sold the spinach. You should know who your suppliers are. You should be aware of their health and safety processes and policies. You should verify that they do regular health and safety inspections or do your own. Your supply chain should be visible to you and you should know that you can trust everyone in it and that everyone in it is doing their job.

It’s not just the benefits of global visibility, or the costs associated with having to trash or scrap and write-off a large buy since the quality was sub-par and the product unusable. In cases where you are producing a product for public consumption, lack of visibility, as this example clearly demonstrates, can produce a product so unsafe that someone dies. And that’s going to cost you a lot more than the high dollar lawsuit sure to come your way – it’s going to cost you brand image, customers, and if you’re the poor sap whose job it was to insure quality, a hell of a lot of sleep.

I’m not saying you need to rush out and buy a six, seven, or eight figure visibility solution (although I’m sure Apexon (acquired and merged with Infostretch in 2022) would love to talk to you if you thought that was the answer for you), although a solid visibility solution is definitely worth a reasonable investment, but that you need to develop a visibility mindset. Institute processes to make sure each supplier meets your health, safety, and quality requirements, perform your own random checks, make sure your suppliers do their checks when they say they do, and to the required level of quality, and, finally, make sure your suppliers have a culture of making sure their suppliers aspire to the same level of health, safety, and quality that they do. Visibility needs to permeate your supply chain to provide maximum benefit.