Procurement is an information game, with the best-informed organizations able to optimize sourcing, minimize disruptions from incoming materials, and collaborate with suppliers more deeply. Thanks to advances in technology, gaining information on supplier performance and potential disruptions is no longer such a time-intensive task. In fact, it’s now feasible for organizations to maintain visibility into supplier operations at even the second and third tiers, which ultimately leads to better informed procurement decisions, risk management, and supplier relationship management.
After discussing the importance of supplier visibility, this article draws from APQC’s cross-industry benchmarking data to show how good visibility drives better performance for procurement. While visibility into lower-tier suppliers allows for faster responses to disruption and more sustainable supply chains, it also enables greater efficiency in some of procurement’s most important processes.
Leading organizations use risk notification and visualization solutions, integrated vendor portals, and similar tools to achieve visibility across their supply chains. These systems allow an organization to automate reporting on numerous levels to track supplier production, inventory levels, lead times, deliveries, or adherence to any quality, performance, or sustainability measure. Integrating compatible platforms is often a significant but essential hurdle to being able to monitor and analyze supplier data.
There are at least three reasons why organizations should strive for this level of visibility into lower-tier suppliers. First, organizations that rely exclusively on tier 1 suppliers to manage lower-tier suppliers will take longer to learn about disruption, which means they will also have less time to implement contingency plans in the event of disruption. This was a lesson that many organizations learned the hard way in 2020.
Secondly, organizations that lack visibility into lower-tier suppliers may expose themselves to unnecessary risks in product quality. When lower-tier suppliers cut costs or respond to shortages by using lower-quality materials, the financial and reputational damage for organizations can be severe. Audits across the entire supply chain are the most effective way to ensure quality materials, but these audits are not possible without broader supplier visibility.
Deeper visibility into lower-tier suppliers is also critical for organizations that want to set and accomplish ambitious sustainability goals. Researchers estimate that 70 to 90 percent of an organization’s total greenhouse gas emissions come from its supply chain, so organizations that want to be more sustainable need to take aim at Scope 3 emissions, in particular those from suppliers. Unfortunately, APQC finds that only about a third of organizations (32 percent) include lower-tier suppliers in their overall sustainability strategy.
While many organizations have at least some visibility into lower-tier suppliers, there is certainly room for improvement. Only 40 percent of organizations have visibility beyond tier 1 suppliers to a very great extent, while 44 percent have moderate levels of this visibility.
Another indicator of supply chain visibility is the percentage of products or services for which an organization has identified lower-tier suppliers, processing sites, and materials. For example, if an organization has only identified suppliers and materials for a third of its products, the other two-thirds of its products are at much greater risk in the event of disruption. APQC finds that only 18 percent of organizations have good sub-tier supplier visibility (i.e., at least 80 percent of suppliers identified) for more than half of their products.
Visibility plays a role in procurement’s performance
Supplier visibility has a direct impact on how procurement carries out some of its most important work. For example, with a better view of their entire supply chain, the organizations with the greatest extent of visibility have a median supplier lead time of 21 days, while organizations with little or no visibility have lead times of 30 days.
Deeper visibility into suppliers can also help organizations reduce some of their personnel costs. APQC finds that organizations with greater visibility use fewer full time-equivalent employees (FTEs) for ordering materials and services than those that have little or no visibility.
Gaining visibility into sub-tier suppliers used to be much more difficult, time-consuming, and labor-intensive than it is now. Fortunately, advances in technology are making it easier for organizations to achieve deeper visibility across their supply chains and gain better insights into supplier performance in real time. When organizations have visibility across their supply chain, they are able to respond more quickly to disruption, pursue deeper collaboration with suppliers, and carry out procurement processes more efficiently.