Supplier Management Technology Trends for 2009

As corporations continue to break down silos of vendor information, market forces will drive evolution of supplier information management into supplier risk and performance management

The field of supplier management saw some very interesting technology innovations in 2008, which can be viewed as the year that technology vendors started seeing supplier management in a new light.

Prior to 2008, supplier management was mostly viewed as part of a larger application space, such as e-sourcing, and not a large enough problem area to demand dedicated focused solutions. But a market for standalone, focused supplier management applications definitely developed in 2008, and as we leave the past year behind and look forward to 2009, we should evaluate the trends and technology vendors that are evolving to meet those trends.

In 2008 we saw the development of a market called supplier information management (SIM). SIM is focused on managing all supplier-related information in one central global repository to enable the feeding of this information to all the people, processes and systems that need it.

SIM evolved because large global companies had created silos of vendor information that started causing major risks to the public and to the brand overall. These supplier management issues started impacting the brands of large public companies in a very big and visible way as the example below illustrates.

The story of lead paint being discovered in Mattel manufactured toys back in July 2007 has been well documented. Since these issues at Mattel were caused by the supply chain and Chinese suppliers, one could argue that this event was one of the forces behind the overall SIM movement.

The impact to Mattel's brand image and stock price has been tremendous. The timeline and stock impact can clearly be seen in Figure 1. From the time of the first published announcement in July 2007 to the final settlement payment in December 2008, the stock and overall brand value of the company took a huge hit. What was the overall cost to Mattel for this failure in supplier management? The total impact to the stakeholders may never actually be calculated.

The Mattel saga is just one of many stories in the past year that helped bring supplier management and the lack of visibility into supplier information to the forefront. As can be seen in Figure 2, many public companies were impacted by supplier management problems, including Lenovo, Pfizer and AT&T. Would improved supplier management systems and practices have helped to avoid these headlines? Some of us in the supplier management technology field believe so.

With supplier management making front-page news in this way, it was only a matter of time before technology vendors identified the need and offered products to help companies improve their supplier information management processes. The goal of these supplier management technology solutions was to help provide an integrated approach to managing the lifecycle of supplier-related information.

Supplier data could include banking information, diversity data, insurance certificates or factory audit information. Again, the idea was to have one central place to search for, store and manage all related supplier information. And in 2008, several vendors offered solutions to help companies solve this problem, including Aravo, CVM Solutions, Dun & Bradstreet, Ariba, Supplierforce and Bravo Solutions.

All these vendors brought some set of core strengths focused on solving the SIM problem. These strengths include the ability to "onboard" suppliers in a scalable way, as well as workflow to manage the supplier onboarding process. Some of these vendors took more of a pre-contract or sourcing perspective, while others focused on post-contract processes. Although they all offer some very interesting capabilities, they are all still lacking the functionality for a complete supplier management solution.

In 2009, we will see several trends that will most likely impact the features of the vendors in the supplier management space. We will also see the emergence of several other vendors into the market in 2009. The trends that we will most likely see in the year ahead include a renewed focus on risk management and the integration of supplier performance management into standard supplier management processes. Figure 3 illustrates how the supplier risk and performance management (SRPM) market will evolve to cover all the major markets for supplier management technology.

The first trend that we will see is a refocus on supplier risk management practices. This is difficult to argue given the current state of the economy. Supplier risk management is the practice of proactively managing suppliers in order to lower overall risk exposure. Every company must assume that all of their suppliers are potentially at risk of bankruptcy or some form of disruption. What makes this trend very interesting and challenging is the fact that every organization views supplier risk differently. Financial services companies view supplier risk very differently than do pharmaceutical companies. They both might feel that managing supplier risk is extremely important but not agree on the factors that make a supplier potentially "high risk."

The second major trend is the mainstream integration of supplier performance management into all supplier management practices. Many organizations do in fact proactively manage supplier performance through various methods, both automated and manual. But they typically focus their supplier performance management efforts on a small percentage of their overall supply base. Again, given the state of the economy and the external business climate overall, it makes more sense to mange most, if not all, of your supplier's performance. Managing supplier performance should not just be for extremely high-value contracts but should be standard practice across the supply base. Improved automation will make this possible and support this overall trend.

Several vendors are in a position to support these trends, including ChoicePoint (now LexisNexis) and Hiperos. ChoicePoint offers tools and content focused on identity management, which is a cornerstone of supplier risk management. ChoicePoint is able to provide detailed information on suppliers, including background checks (corporate and individual), watch list verification and other security screening. Hiperos has focused on supplier relationship and performance management. Hiperos supports one place to manage complex supplier relationships and manage performance against those defined relationships.

In 2009, we will most likely see SIM evolve into a market that combines supplier risk and performance management as a focus instead of just on overall supplier information management. The focus of SRPM solutions will be to proactively mitigate risk while at the same time managing performance across the entire supply base. Vendors will need to evolve their products to support these trends and thereby meet the needs of large organizations.