We tend to think of supply chain disruption as the consequence of external variables that impact day-to-day operations—events or market forces over which companies and supply chain decision-makers have little to no control. The Coronavirus disease (COVID-19), growing political tensions, shifting manufacturing hubs, evolving workforces, all of these and more contribute to supply chain disruption and performance in the most traditional sense.
COVID-19 is of course the most recent and notable example. According to a recent Hackett Group report leveraging SourceDay customer data, 40% of purchase order line items changed across geography, company size and industry. As the Coronavirus became a global disruptor, February 2020 data showed that up to 61% of purchase orders placed contained line items with some form of critical change.
Supply chain disruptions can often distract from the more fundamental problem—many supply chains are too complacent to perform well even in the friendliest of market and economic conditions. In some cases, the problem is so embedded in daily operations that companies simply pretend it doesn’t exist or treat revenue losses in the supply chain as a foregone conclusion.
That’s why we see companies ordering increased quantities of safety stock above what they actually need from critical suppliers. They know that, somewhere along the supply chain, something will change or fail and they’ll only get half of those parts on time, in full and undamaged. They’ll then declare victory and say, “Well, at least we got all of the parts we actually needed.” Never mind that hundreds of thousands of dollars or more are now tied to inventory they don’t need and can’t turn.
It’s the perfect example of mental gymnastics at its finest, and it’s costing companies more than they can afford.
While it can be tempting to attribute poor supply chain performance to poor supplier performance, the latter is often a symptom—not the cause—of the former. The culprit isn’t a person at all. It’s the underlying data.
According to SourceDay data, only 43% of sampled buyers and 49% of sampled suppliers maintained consistent on-time, in-full delivery rates. These numbers suggest that the natural limitations of the data itself—and the tools that govern its management—are the real cause, not the suppliers themselves.
The ERP is where supply chain data goes to die
The cascade of failures from which many manufacturers and distributors suffer in their supply chains can be traced back to the enterprise resource planning (ERP) system itself. Consider the average buyer’s interaction with their ERP. They input the data points for materials, min/max safety stock, inventory, lead times, all the individual components that comprise the hundreds or thousands of purchase order lines that dictate the movement of materials from supplier to buyer.
Within a day, that data is more stagnant than a swamp in August simply because companies lack the connective tissue between ERP data and their supplier networks.
Repairing the broken buyer-supplier relationship
● Stop blindly trusting your ERP. When it comes to direct spend and supply chain performance, ERPs are not the safety nets decision-makers think they are. Trusting one’s ERP is often the default mentality, and therefore the first mistake. Buyers and supply chain teams should instead treat ERP data with healthy skepticism, and look for the telltale signs of the gap between their ERP data and supplier data. How frequently do suppliers’ lead times change? How frequently and quickly are those changes communicated back to the buyer and reflected or updated in the ERP? How responsive are suppliers? How much time does it take for them to respond to purchase order changes or expedite requests, assuming they even see them? How often are supply chain teams overpaying on supplier invoices that don’t match purchase orders? Supply chain decision-makers should know the answers to these questions in real-time at the click of a button.
● Give your supply chain—and the teams working in it—the attention they deserve. Automation has become a cornerstone of modern business, except for in the supply chain. Sales, marketing, operations, HR all have the advantage of modern technology that automates—or at least ensures the accuracy of—critical business functions. Supply chain teams, meanwhile, are stuck using tools that have remained unchanged for 30 years, putting them at a natural disadvantage not just within the increasingly complex world of global supply chains, but within their own organizations.
● Elevate supplier relationships from tactical to strategic to improve supply chain performance. Suppliers don’t want to ship parts late any more than buyers want to receive them late. Suppliers are meant to be strategic partners but are limited by the data they have. When purchase order lines change in the ERP on the buyer side but aren’t effectively communicated to the supplier (or vice versa), the strategic role the latter should play disappears. In its place is the constant day-to-day grind of updating spreadsheets, managing dozens of email threads and frantic attempts on both sides to compensate for change. These types of supplier relationships are toxic; they breed mistrust and unaccountability, and you can trace a line directly from them to revenue loss. While the day-to-day management of suppliers is business-critical, it shouldn’t replace the more strategic conversations and assessments supply chain teams should be holding internally. Increase the frequency of those meetings from monthly or quarterly to weekly or bi-weekly. Use that time to assess past supplier performance as a function of go-forward planning and forecasting. Identify the areas within your supply chain suffering from a lack of communication and collaboration, and determine how present and future supply chain performance could impact revenue targets and customer relationships.
Avoiding the supply chain surprises that have become all too familiar requires that companies connect their ERPs to their supplier networks to automate and facilitate data from the buyer to the supplier and back again. The moment this happens, the limitations and frustrations of the buyer-supplier relationship are removed, paving the way for real-time collaboration, a new era of accountability and the potential to once again trust that parts will arrive on time, in full and without the bloated costs to which companies have come to expect. And, just as broken supplier relationships can be linked to revenue loss, fixed ones can be linked to revenue gains.
