There was a time when the demand to reduce cost in the supply chain was the only consideration a purchaser need concern himself with when evaluating a supplier. Nowadays a whole host of considerations means that supplier analysis has become a far more involved process than was once the case.
Key market drivers such as regulation, turbulent business environments and the need to mitigate risk and deliver enhanced financial value are pushing the boundaries on they type of supplier knowledge companies need to gather.
Transaction-related activities such as spend analysis, sourcing and category and contract management are no longer sufficient. Instead a more complete analysis and insight into a far broader range of supplier-related activities is now required.
The focus now is very much on supplier intelligence, commercial and financial risk analysis, improved relationship management and innovative methods of social enterprise collaboration.
The criteria for assessment are broad and deep – and well beyond the scope of a single article. Here we’ll outline some of the key topics and why they’re useful approaches to supplier management.
1. Supplier Information Management
Supplier Information Management (SIM) is used to identify, gather and maintain a range of information on your supplier. Typically that information is financial, operational, and related to their CSR policy and compliance factors. It is used for communication purposes and streamlining processes with the supplier.
SIM extends beyond the parameters of traditionally limited transactional and financial data and encompasses the fields named above, giving greater visibility and intelligence on suppliers.
The level of information required depends on the value of the supplier, the category of business and the level of spend and the level of potential collaboration. Effective decisions cannot be made about the supplier without adequate information on them.
The main benefits of investment in SIM include risk mitigation, improved visibility, and an increased ability to leverage commercial relationships with suppliers for competitive gains.
2. Supplier Risk Management
Supplier Risk Management is used to proactively identify, assess and manage risk in your supply chain, particularly those suppliers that are mission critical. Supplier Risk Management is prudent, given the global nature of most supply chains, and the complexity of the shipping supply chain. As the market recovers, it is still fairly common for businesses to go rapidly from solvent to bankrupt, which can be catastrophic. The IMPA ACT programme can help to identify and mitigate risk in the supply chain.
3. Sustainability and social responsibility in supply chains
Sustainability and social responsibility in the supply chain are fairly modern considerations. Sustainability in this instance is generally taken to mean being able to meet the demands of today without compromising the ability of future generations to do so – this applies equally to economic, environmental and social challenges.
It therefore goes beyond traditional notions of sustainable practise i.e. waste management, and extends into risk, financial responsibility and compliance to standards expected of suppliers, among other things.
Social responsibility meanwhile is a framework of measurable corporate policies and procedures, the resulting behaviours of which are designed to benefit the workplace and, by extension, the individual, the organisation and the community. The benefits are in a number of areas including, but not limited to, the environment, ethics, human rights and health and safety.
These standards are generally achieved through the development and communication of principles and the sharing of tools, information and best practices – something that the IMPA ACT programme provides.
4. Supplier Relationship Management
Supply Relationship Management is a relatively new weapon in the supply chain armoury, at least in its current guise. It is essentially a way for organisations to capture more value and improve performance in the supply chain through collaboration and involves much less confrontation that has been traditional in the supply chain.
According to supply chain management expert, David Atkinson, SRM is the deliberate pursuit and systematic management of post-contract value, attainable from an organisation’s supplier.
“There are two key elements to this definition,” wrote Atkinson in a report on the topic. “Firstly that SRM is a deliberate systematic process,” going beyond the collaboration is good and adversarial relationships are bad model. “SRM can be seen as a series of familiar or easy-to-learn tools, practically applied in an extremely focused way.”
The second key element is that in practising SRM “we are largely concerned about what happens post-contract,” says David. It has often been the case that SRM has been positioned as the final step in the category management process, only for it to be overlooked while practitioners move from one spend category to another. According to David this leaves “many attainable savings hanging fruit-like, unpicked from the tree.”
Want more on SRM? Read our in-depth analysis with David Atkinson.