What You Can't Afford Not to Know About Your Suppliers

Global supplier insight can help companies maintain sustainable savings and reduce business risk


Whenever an actor or musician makes it to the top of his game and debuts in a world-class venue, there are always going to be surprises. Performing at the Metropolitan Opera is never the same as performing on a local or regional stage. Fortunately in the performing arts world, outstanding talent typically finds a strong group of advisors such as agents, mentors and assistants to help guide the journey, making the transition onto the global stage easier than it would otherwise be.

However, other groups that make it to the limelight do not have the same support system. The rise of global supply strategies in the past decade is a perfect example.

No one disputes that the procurement and supply chain function across multiple industries has taken on a far more strategic role today. Despite this rise — even with the introduction of new business processes and programs, skills and staff development initiatives, and new technology and systems — few organizations are equipped with the global insight necessary to operate at a world-class level on a new stage.

For most organizations, the largest supply management challenges lie with what happens outside of their four walls, not within. Despite this, virtually all of the processes, people and systems investments organizations' have made have been internally focused.

As companies' supply chains continue to extend and as the pace of change accelerates across categories, countries and industries, we're starting to see that external global supplier insight is becoming a competitive advantage that companies need to thrive.

The Importance of Seeing Beyond Your Four Walls

Global supply-base insight starts by helping companies make better global sourcing decisions by making it easier to find and qualify the right set of suppliers and by ensuring that the information is accurate. From regional supplier directories to detailed and current performance, risk and capability intelligence, global supplier insight can become as indispensable to sourcing and supply management as a stage is to an actor. It can also help organizations understand on a total landed cost basis — quantifying price, performance and risk — the difference between regional suppliers and those from emerging markets such as Mexico and China. And once an organization selects the right set of global suppliers, external insight and connectivity solutions can help reduce ongoing procurement costs by alleviating the need for direct IT involvement and ongoing management.

In today's market, identifying the right sources of global supply is critical. But if suppliers cannot meet performance, quality and other requirements on an ongoing basis, then even the best, validated decision or cost model will be for naught. Consider how in 2004, according to Industry Week, John Deere spent nearly $340 million on warranty claims that were due to supplier part defects. In 2006, when more than nine million computer batteries were recalled due to quality issues at Sony Electronics, it cost an estimated $429 million. The upshot of these examples is that organizations are beginning put greater importance on its global supplier performance insight in an effort to proactively monitor their supply base and take action before it is too late.

While all supply management organizations agree that supplier quality and performance checks are essential, ongoing supplier financial and operational viability is of even greater concern. The challenge of comprehensive supply risk monitoring is that it involves looking across all of a company's suppliers — even smaller ones that might not appear overly strategic.

The ramifications of not taking into account all supply risk can be significant. When Land Rover (a division of Ford) ignored the warning signals of a critical chassis supplier for its best selling Discovery SUV model, it was ultimately forced to purchase the supplier to avoid shutting down its own production for an indefinite period. Other companies have not been so lucky. Both Saturn and VW plants have sat idle in recent years as shutdowns/strikes from smaller suppliers' halted production lines.

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