October 06, 2015 by Donna Fritz
At TAKE Supply Chain, we have a wide range of customers with a wide range of concerns. Still there are some common themes that continue to surface. Namely, (1) the need for visibility into the right things at the right time, the ability to understand and react to the impact of global events, (2) whether they have the right mix of technology, and (3) how to keep up with a competitive marketplace. One way to address many of these concerns is to improve supplier relationships and overall performance by transforming the supply chain from a silo-driven and silo-focused function into a truly holistic, end-to-end, integrated supply chain.
When a company has a siloed focus, the relationship with trading partners is typically defined within the constraints of the silo. This puts the relationship at risk of being more transactional and commoditized – it is much harder to build a partnership. I’ll give an example. If the primary dealings a supplier has are with procurement, procurement’s KPIs will be center stage for the supplier’s performance measurement. In this case, common procurement KPIs…such as price and availability…would be at risk of becoming disproportionately ranked core metrics. Now, it’s not that procurement KPIs aren’t important; they are very important. But if a single department has a lone or disproportionately large influence on the relationship, it can end up inhibiting and even drowning out valuable input and requirements from other areas critical to supply chain operations, such as manufacturing and quality.
Opening up the relationship and sharing information and metrics across all critical departments gives trading partners insight and allows them to understand where they can best improve the quality of their products and services to you. And in most cases, that is exactly what they want to do.
In contrast, a holistic view is one that looks at all the company’s revenue activities and expense activities together – they become a single, overall system that helps the company compete in the marketplace, as well as preserve its financial health. If you take this same holistic perspective and focus on trading partners, it becomes a way to better understand both sides of the coin.
When you view your trading partners also as companies that buy and sell to be competitive and financially healthy, it becomes easier to understand how your network really works together beyond simple transactions that involve purchase orders and invoices. In other words, you have a stronger picture of ‘where and how your trading partners fit into your supply chain…as well as where and how you fit into theirs’.
There are a couple of benefits to this perspective:
Ultimately, it can help your company migrate to stronger partner-oriented relationships. The more of these types of relationships you have, the more they can help carry you through tough times and help you go the extra mile when you need to.
We typically advise our customers to approach this from the perspective of integrating their procure-to-pay system with their trading partners’ order-to-cash systems, or vice versa. This not only provides operational efficiencies, it helps to close the loop and provide greater accountability for all parties. Every company is different, but here are a few core evaluations to make in the areas of data sharing, tools and reporting. Some of this you can do on your own, but it can also be helpful to engage some of your trading partners for feedback.
Most performance measurements focus on the actions of the supplier and how reliable they are, but it’s probably safe to say that we’ve all worked with at least one difficult or bad customer in our careers. So, the best first step is to start by asking your own sales staff which are the best and easiest customers they work with, and who are…not so much. This can drive a quick self-evaluation to identify areas where your company can become a better customer. Then you can triangulate your findings by regularly talking with a sampling of trading partners to learn about ongoing needs, as well as gauge satisfaction and commitment.
EXAMPLE: A number of years ago, I had an executive at a very large customer tell me that he wanted the company I worked for to run smoothly and be successful…and that we needed to make sure we didn’t negotiate ourselves into a position of weakness or create an unnecessary amount of additional work for our staff. He said that if we were healthy and innovative, we could help his company more. I took that to heart. If your trading partners are innovative and financially healthy, it puts them in a better position to reliably support your supply chain.
We’ve typically seen requests for modifications in finance terms, more realistic and qualitative KPIs, task automation, and just general communication at the top of the list. Other areas are contract negotiations and bureaucracy, price changes and order-change timing. An important note is to make sure to understand not only what suppliers need, but how much it impacts them. Sometimes small modifications that don’t cause much disruption can go a long way. But other times, you really have to give some thought to the changes your suppliers request and how much you can accommodate them. Having a basic understanding of both the impact and the importance of any given improvement to your trading partner can help to drive your decisions.
If the process is in place, the KPIs are well developed, and you aren’t getting the results you want, it’s probably good to do a quick assessment of the improvement program prior to instituting process changes. Often times the problem doesn’t lie in the process…it’s that the improvements aren’t meaningful.
I would look in two areas:
I would evaluate this first, then I would re-evaluate the KPIs. After that I would evaluate if changes in the process are necessary.
Transforming the supply chain is not something that can be achieved quickly, but with a committed approach, the transformation can deliver long-term results. You will have the visibility and control to better manage both sides of your supply chain, while at the same time improving communication and commitment to your partners. It’s a win-win.