Procure IQ

Coming out of the global economic crisis, a new business climate is taking shape that will permanently change the way organizations need to deal with Buyer-Supplier Relationships. The old normal was a world where credit was freely available. In the new normal credit will no longer be easy and we’re going to face an inflation risk. This has driven many suppliers to choose which customers they want to serve. So now is the time for many Buying organizations to become a “Customer of choice” since it might be too late when markets become tight and are forced to line up with other buyers to get suppliers attention.

Best-in-class companies leverage collaborative Supplier Management as a means to mitigate Supply Chain Risk and also use as a competitive differentiator to drive substantial bottom-line revenue growth and profitability. But the path to a success Supplier Management initiative requires not only a world-class web based technology and tools but also structured processes, expertise and access to a networked community to succeed.

Top “Lessons Learned” for enhanced Buyer-Supplier Relationships in the “New Normal”:

1. Learn to operate in the “New Normal” – Agility and information are the keys to success
2. Supplier Collaboration is the new way to work with suppliers in the new normal. Collaboration jumpstarts Innovation
3. Suppliers can pick customers they serve and it is imperative for buying organizations to become “Customer of Choice”.
4. Suppliers in all industries and geographies are in a very different position than just two years ago
5. Supplier Management don’t have to be a complex, laborious undertaking with “no light” at the end of the tunnel (can be turned into a competitive advantage using a structured approach to manage suppliers)
6. Total visibility in the supply chain and suppliers substantially improves efficiency and competitiveness in organizations
7. Supply Risk is not going away just because the economy is getting better

Sundar Kamakshisundaram is a Senior Solutions Marketing Manager for Ariba, a global provider of spend and supply risk management solutions.

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Last week on SpendMatters, William Busch covered the shutdown at a Canadian Ford Motors factory that was caused by labor unrest at an auto parts supplier facility in India. I provided my views in the Comments, but wanted to share them here as well, since Supply Excellence readers may also have some insights on the topic.

Unfortunately for Ford, this case caught them off guard and demonstrates how tricky risk management can be. You never really know where an impactful disruption might occur. However there are structured ways of being prepared.

Firstly one has to be aware of all the different kinds of risk that might hit you; disruption, financial, reputational or even major disasters like a tsunami. Probably nobody has the resource to cover every possible risk. During my time as global head of procurement, we developed a risk segmentation prioritized by profit at risk. This way one can deploy moderate resources and protect the business where it matters most.

In such an approach, one cannot stress enough how important it is to have solid, up-to-date supplier information. So, supply risk management and information based supplier management are two sides of one coin. You should not attempt one without the other. Fortunately today there are information providers and systems available to help with these tasks. However, this can only help if you get your spend management house in order and know exactly how much you spend for what.

In the past many have shied away from what can appear a daunting task that could potentially devour all of your valuable resources. With structure, good base data and possibly some external help, one can manage comfortably. This appears infinitely better than having to explain why 5,000 cars could not be built and huge sales are being lost.

Uwe G. Schulte’s LinkedIn Profile.

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Last week in the Strategic Sourcing & Procurement Group on LinkedIn, I posed the question:

“What lessons or changes – brought on by the recession – will you continue during the recovery?”

Certainly, with the volatile business climate we’ve all experience in the last 18 months (and are hopefully emerging from), there are adjustments that have been made and take-aways that were taken to heart, which will continue to be applied through the recovery.

A few of the responses thus far…

Monitor Supplier Health

“One top lesson weathering the recession has raised is the significance of managing supplier financial health and other economic risks. Particularly, what role procurement should play to pro-actively identify potential problems early on and then to develop strategies and contingent actions to counterbalance supply chain failures that can eventually occur. Effective leadership (or ownership) of supply relationships equates to managing the outside partnerships as an extension to your own organization and strategies. When times improve, business partners should also expect and anticipate the unexpected as well.”

Predict (and plan for) the Unexpected

“During tough times we should ensure the supplier’s survival so that the supply chain is uninterrupted and works smooth. This process can be carried forward during the recovery period also. Procurement professionals pro actively understand and predict the market situation and help every one down the supply chain formulate their strategy based on this.”

Get Lean & Agile

“Reduce waste, maximize use of existing assets and redeploy to optimize, explore ways to Reuse outdated assets and Recycle spent equipment & consumables.”

It’s often said that the Great Depression was a defining moment that shaped The Greatest Generation’s attitudes and perceptions of money for the rest of their lives. I don’t know if this experience is really on that level, but surely we’ve all learned something we won’t soon forget, right?

So, what has the recession taught you about sourcing/procurement/spend management? And, which of those lessons you’ll carry over to the post-recession world?

Leave your insights in the Comments.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

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Your e-mail inbox is likely getting swamped just now with offers to provide you with up-to-the-minute information on supply risk. I received one last week that pretty much promised all my supply risk issues would go away if I bought their list for $75. If only it were that easy…

The problem is, most of the information in these offers is based on historical financials and, as they say on the TV commercials, “past performance is no guarantee of future results”. Using only backward-looking historical information about supplier performance as your key metric for judging risk cannot provide you with a complete set of information on which to base some very important decisions about your supply base and risk exposure.

Instead, you need to develop a true 360-degree view of the supplier’s health by incorporating information from multiple sources:

• Financial (e.g. Z scores)
• Operational (on-time performance)
• Third-party (NGO sustainability ratings)
• Internal surveys (regional VP surveys)
• External surveys (supplier feedback)

Not surprisingly, this is an immense amount of information to find, collect, organize and present in a logical manner for decision-making. Doing so requires a robust technology platform, structured processes, and knowledge of how to set up and execute.

Developing this 360-degree view of your supply base will provide your organization with the best chance to Find, Fix and Follow-Through on the risks facing your supply chain.

Kris Colby is a Director in Ariba’s Spend Management Services group. Kris specializes in strategic sourcing and risk reduction with retail and CPG companies.

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Moody’s released their latest “Bottom Rung” list yesterday and 283 out of the 2,073 companies evaluated by the ratings agency are on it. The list has nearly doubled in size since last year when 157 companies earned the dubious honor. According to the Wall Steet Journal, it includes “the companies that Moody’s says are most [...]

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Cost savings may be job number one today, but the current economic crisis portends an equally disturbing storm brewing on the horizon: heightened supply risk. Volatile commodity prices, credit shortages, 23consolidation and bankruptcies are combining so that companies – regardless of their size or the industries in which they operate – will face some form [...]

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With all the news about product recalls – from peanuts to lead tainted toys – and economic uncertainty, there’s been substantial conversation over the last year-plus about the importance of implementing a robust and comprehensive Supplier Performance Management (SPM) system. While this has been on company’s “wish lists” for some time, the confluence of [...]

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In speaking regularly with companies interested in improving their spend and supplier visibility, it is not surprising that there has been a marked up tick recently, given the ever-deteriorating economy, in the interest in supplier credit rating information. While credit ratings are useful providing meaningful directional information about which suppliers may be susceptible to [...]

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