Improving efficiency in collaboration with suppliers<\/p>\n
Arsi Aryanto, Contributor, Jakarta<\/p>\n
As companies search for new opportunities to reduce costs and
\nimprove operational efficiency, relationships with their supply
\nbase have become a key asset in improving profitability.<\/p>\n
Suppliers perform vital activities that directly impact a
\ncompany's financial performance: they influence supply chain
\ninventory levels, schedule capacity, deliver goods and services
\non time, communicate and promise item availability, and manage
\ncosts.<\/p>\n
A 360-degree view of supplier capability is critical to the
\nfinancial success of every company - and that is where Supplier
\nRelationship Management, or SRM comes into the picture.<\/p>\n
Market analysts, enterprise software vendors and corporate
\nusers almost universally agree that SRM represents a key
\nopportunity to improve supplier relations and operate more
\nefficiently across the extended supply chain. Yet before
\ncustomers can make the decision to invest in another IT trend, it
\nis important to look beyond the SRM hype.<\/p>\n
A review of SRM product descriptions of leading enterprise
\nsolution providers offers broad clues, but no clear consensus.
\nMany vendors position SRM primarily as a Web-based sourcing and
\nprocurement solution. That is a significant component of SRM, but
\nthere is more to it.<\/p>\n
Research by leading industry analysts provides more clues.
\nHowever, while analysts agree that SRM focuses on improving
\nsupplier-facing business practices, there is less of a consensus
\nabout the boundaries of SRM. In the meantime, companies that have
\nalready invested many years in implementing Supply Chain
\nManagement (SCM) solutions are wondering how SRM can be of
\nbenefit to them.<\/p>\n
What is SRM? Sourcing and procurement are key SRM functions,
\nbut a working definition of SRM should not end there. In our
\nview, a robust SRM system should serve the full spectrum of
\nsupplier relations. Take product design. Input from suppliers is
\ncritical when developing prototypes or upgrading existing
\nproducts. Chief among development issues is whether suppliers of
\nrequired materials, parts and services can meet the design
\ntolerances and deadlines, while coming in at an acceptable price.
\nIf not, it is back to the drawing board.<\/p>\n
The same is true of manufacturing. Many corporations that are
\nadopting e-business strategies are moving from vertically
\nintegrated organizations to virtual models.<\/p>\n
Increasingly, Original Equipment Manufacturers (OEMs), such as
\nchipmakers and automobile manufacturers, are outsourcing various
\nphases of production, from design, fabrication, product assembly,
\nfulfillment and even customer service and support. As a result of
\nthis move to "virtualization," enterprises are spending
\nincreasing amounts on goods and services, with such expenditures
\noften exceeding 45 percent of revenue, according to a June 2002
\nGartner Research report by analyst David Hope-Ross.<\/p>\n
While these outsourcing partnerships enable manufacturers to
\nimprove their financial performance and market competitiveness,
\nthey raise formidable supply chain and logistic issues. With
\ncontract manufacturing and other outsourced services integrated
\ninto the product life cycle, companies and their suppliers must
\nclosely manage and coordinate their activities worldwide - often
\nacross languages, time zones, currencies, regulatory climates and
\ncultures. Moreover, companies increasingly rely on the
\nspecialized knowledge and expertise of major component and
\nservice suppliers for product design and engineering.<\/p>\n
Based on experience, we believe there are four factors
\ncritical to the implementation of a successful SRM solution:<\/p>\n
- Integration. First automation inside the enterprise.
\nAutomating a couple of processes is not sufficient. These
\nprocesses should feed each other. A single source of truth is
\npossible only if all the processes are based on a common data
\nmodel. Integration between business processes within the
\nenterprise is the first step.<\/p>\n
- Connectivity. The second step is to enable connectivity with
\nsuppliers. They should be able to inquire, view and transact
\ndirectly with the buyer's system. To get the buying from
\nsuppliers, the SRM connectivity mechanism must be affordable,
\nrelatively easy to use and scaled to the volume of business;<\/p>\n
- Intelligence. With a single view of the supply chain, add
\nbusiness analytics that help identify the areas of greatest
\nopportunity, then track and measure performance against
\nestablished goals that can be shared across enterprise
\nboundaries.<\/p>\n
- Collaborative Culture. Finally, a change in mindset to promote
\nand support collaboration across the supply chain. The buyer-
\nsupplier relationship must be cooperative in nature and focus on
\nmutually beneficial goals.<\/p>\n
Agreeing that collaborative SRM can deliver customers real
\nvalue, how does a company get started? The prospect of organizing
\na geographically dispersed supplier network may seem daunting.
\nThe good news is that today's e-business solutions address the
\nchallenges of a global supply chain and provide multi-language,
\nmulti-currency support. Even better news is that SRM solutions
\nare modular. You do not have to connect your entire supply chain
\nin one fell swoop.<\/p>\n
First, establish your SRM Strategy. You can begin with a
\ncritical supplier facing function that is likely to offer the
\ngreatest bang for the buck, such as sourcing and procurement. In
\ncollaboration with preferred suppliers, you can automate the
\nSource-to-Settlement process, so the key interactions can be
\nhandled online: requisitioning, purchasing, invoicing and
\nreceiving; to payment processing, cash reconciliation and
\nperformance reporting.<\/p>\n
Next, you might concentrate on outsourced manufacturing or
\ndemand planning. A third phase might involve design and research.
\nThere is no correct order or imposed time frame. With modular
\nsolutions, you can add functionality and features as part of a
\nlong-term, evolutionary process. What is important is that the
\nvendor should support your needs as your appetite for the
\nsolution grows.<\/p>\n
Once a common Web-based infrastructure and standardized SRM
\nsolution is in place, suppliers can be added without having to
\nreengineer the system. Supplier resistance to linking to one or
\nmore buyers is lessened because of the range of interface options
\n- XML, EDI, Web services, self-service portals and even email.
\nWhat this means is that you're not asking your suppliers to
\ninvest a lot of capital and time in linking to your system. On an
\nindividual basis, you and your suppliers can figure out what
\nworks best.<\/p>\n
SRM mutually benefits buyers and suppliers by getting everyone
\non the same team - and the same page. Instead of a fragmented
\nview of suppliers, companies gain visibility across the extended
\nsupply chain and real-time access to complete business
\ninformation.<\/p>\n
Through the provision of flexible Web-based connectivity
\nmechanisms, buyers can invite suppliers of all sizes to link up
\nto their system. This enables cross-enterprise automation, which
\nsignificantly improves the accuracy, speed and interactivity of
\nbuyer-supplier interactions. Working collaboratively, trading
\npartners find ways to operate more cost effectively and
\nefficiently as a group. As a result, the aim shifts from forcing
\nthe "lowest cost" for goods and services, to driving continuous
\nprocess improvement and lowering total cost of ownership (TCO).
\nIn this collaborative culture, everyone wins.<\/p>",
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