Improving efficiency in collaboration with suppliers

Improving efficiency in collaboration with suppliers

Arsi Aryanto, Contributor, Jakarta

As companies search for new opportunities to reduce costs and
improve operational efficiency, relationships with their supply
base have become a key asset in improving profitability.

Suppliers perform vital activities that directly impact a
company's financial performance: they influence supply chain
inventory levels, schedule capacity, deliver goods and services
on time, communicate and promise item availability, and manage
costs.

A 360-degree view of supplier capability is critical to the
financial success of every company - and that is where Supplier
Relationship Management, or SRM comes into the picture.

Market analysts, enterprise software vendors and corporate
users almost universally agree that SRM represents a key
opportunity to improve supplier relations and operate more
efficiently across the extended supply chain. Yet before
customers can make the decision to invest in another IT trend, it
is important to look beyond the SRM hype.

A review of SRM product descriptions of leading enterprise
solution providers offers broad clues, but no clear consensus.
Many vendors position SRM primarily as a Web-based sourcing and
procurement solution. That is a significant component of SRM, but
there is more to it.

Research by leading industry analysts provides more clues.
However, while analysts agree that SRM focuses on improving
supplier-facing business practices, there is less of a consensus
about the boundaries of SRM. In the meantime, companies that have
already invested many years in implementing Supply Chain
Management (SCM) solutions are wondering how SRM can be of
benefit to them.

What is SRM? Sourcing and procurement are key SRM functions,
but a working definition of SRM should not end there. In our
view, a robust SRM system should serve the full spectrum of
supplier relations. Take product design. Input from suppliers is
critical when developing prototypes or upgrading existing
products. Chief among development issues is whether suppliers of
required materials, parts and services can meet the design
tolerances and deadlines, while coming in at an acceptable price.
If not, it is back to the drawing board.

The same is true of manufacturing. Many corporations that are
adopting e-business strategies are moving from vertically
integrated organizations to virtual models.

Increasingly, Original Equipment Manufacturers (OEMs), such as
chipmakers and automobile manufacturers, are outsourcing various
phases of production, from design, fabrication, product assembly,
fulfillment and even customer service and support. As a result of
this move to "virtualization," enterprises are spending
increasing amounts on goods and services, with such expenditures
often exceeding 45 percent of revenue, according to a June 2002
Gartner Research report by analyst David Hope-Ross.

While these outsourcing partnerships enable manufacturers to
improve their financial performance and market competitiveness,
they raise formidable supply chain and logistic issues. With
contract manufacturing and other outsourced services integrated
into the product life cycle, companies and their suppliers must
closely manage and coordinate their activities worldwide - often
across languages, time zones, currencies, regulatory climates and
cultures. Moreover, companies increasingly rely on the
specialized knowledge and expertise of major component and
service suppliers for product design and engineering.

Based on experience, we believe there are four factors
critical to the implementation of a successful SRM solution:

- Integration. First automation inside the enterprise.
Automating a couple of processes is not sufficient. These
processes should feed each other. A single source of truth is
possible only if all the processes are based on a common data
model. Integration between business processes within the
enterprise is the first step.

- Connectivity. The second step is to enable connectivity with
suppliers. They should be able to inquire, view and transact
directly with the buyer's system. To get the buying from
suppliers, the SRM connectivity mechanism must be affordable,
relatively easy to use and scaled to the volume of business;

- Intelligence. With a single view of the supply chain, add
business analytics that help identify the areas of greatest
opportunity, then track and measure performance against
established goals that can be shared across enterprise
boundaries.

- Collaborative Culture. Finally, a change in mindset to promote
and support collaboration across the supply chain. The buyer-
supplier relationship must be cooperative in nature and focus on
mutually beneficial goals.

Agreeing that collaborative SRM can deliver customers real
value, how does a company get started? The prospect of organizing
a geographically dispersed supplier network may seem daunting.
The good news is that today's e-business solutions address the
challenges of a global supply chain and provide multi-language,
multi-currency support. Even better news is that SRM solutions
are modular. You do not have to connect your entire supply chain
in one fell swoop.

First, establish your SRM Strategy. You can begin with a
critical supplier facing function that is likely to offer the
greatest bang for the buck, such as sourcing and procurement. In
collaboration with preferred suppliers, you can automate the
Source-to-Settlement process, so the key interactions can be
handled online: requisitioning, purchasing, invoicing and
receiving; to payment processing, cash reconciliation and
performance reporting.

Next, you might concentrate on outsourced manufacturing or
demand planning. A third phase might involve design and research.
There is no correct order or imposed time frame. With modular
solutions, you can add functionality and features as part of a
long-term, evolutionary process. What is important is that the
vendor should support your needs as your appetite for the
solution grows.

Once a common Web-based infrastructure and standardized SRM
solution is in place, suppliers can be added without having to
reengineer the system. Supplier resistance to linking to one or
more buyers is lessened because of the range of interface options
- XML, EDI, Web services, self-service portals and even email.
What this means is that you're not asking your suppliers to
invest a lot of capital and time in linking to your system. On an
individual basis, you and your suppliers can figure out what
works best.

SRM mutually benefits buyers and suppliers by getting everyone
on the same team - and the same page. Instead of a fragmented
view of suppliers, companies gain visibility across the extended
supply chain and real-time access to complete business
information.

Through the provision of flexible Web-based connectivity
mechanisms, buyers can invite suppliers of all sizes to link up
to their system. This enables cross-enterprise automation, which
significantly improves the accuracy, speed and interactivity of
buyer-supplier interactions. Working collaboratively, trading
partners find ways to operate more cost effectively and
efficiently as a group. As a result, the aim shifts from forcing
the "lowest cost" for goods and services, to driving continuous
process improvement and lowering total cost of ownership (TCO).
In this collaborative culture, everyone wins.