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

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.

Fortunately, some organizations have taken the initiative in deploying supplier management solutions that that drive greater insight and context. One diversified manufacturing company leveraged a combination of internal and external insight to measure ongoing performance and more effectively gauge which suppliers would most benefit from development programs. The results of the program speak for themselves (with some unexpected side benefits as well). For example, quality improved 9 percent over a six-month period when suppliers knew that they were being monitored. And quality improved by 20 percent after suppliers completed self-assessments based on lean-manufacturing principles. (This number rose to 26 percent for suppliers that also participated in development activities.)

By nature, global supplier insight comes from outside of a company's firewall. And to be effective, it must come from a trusted global source that is capable of providing up-to-the-minute supply intelligence to help organizations make the best possible decisions.

Where to Go for Intelligence

Companies need global supplier insight and content that focuses on three key areas to maximize their supply management results. These are:

  • Supplier performance and quality management
  • Supply risk management
  • Supplier content and connectivity

To provide insight and connectivity into these three areas, global supplier insight solutions also need to deliver real-time content, analytics, risk management and supplier enablement capabilities. These solutions also need to be offered in a platform-agnostic environment, leveraging existing processes, systems and investments. Like Bloomberg's financial information, which traders and financial managers use to improve their decision-making in the capital markets, purchasing and commodity managers must receive this type of content they way they prefer to digest it, whether pushed to their own desktop or through a specific application or even a designated terminal.

Regardless of industry, maturity and current capability, global supplier insight solutions can enable procurement organizations to take their supply performance to the next level. By empowering individuals with insight and connectivity, they bridge the gap between the internal and external, proving invaluable for strategic and tactical decisions alike.

Perhaps most importantly, they provide a support system and knowledge infrastructure to help procurement and supply chain professionals' deliver results even in an environment where expectations are constantly rising.

About the Author: Jim Lawton, vice president and general manager of D&B's Supply Management Solutions division, the leading provider of supplier intelligence.

SIDEBAR: Supply Management Takes Place Outside of the Four Walls Identify Sources of Supply
  • Find and qualify the right set of global suppliers
  • Ensure supplier-provided information is accurate
Manage by Categories
  • Understand what it takes to get a sourced product from the raw material phase to your factory floor
  • Tap into new means of supplier integration and communication
Optimize Supply Performance
  • Improve total cost performance to ensure the lowest total landed cost for goods and services
  • Optimize supplier allocation and reduce risk
Monitor Supply Performance
  • Monitor and develop suppliers to ensure high quality and performance
  • Implement proactive supply risk management
Re-source/Identify New Opportunities
  • Define areas of ongoing supply performance improvement and cost reduction
  • Treat the supply base as a source of competitive advantage

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