Jun
3
5 key ingredients of supplier management
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Purchasing is often divided into two functional areas – one part responsible for placing purchase orders, expediting and sourcing (often referred to as tactical purchasing) and those that are responsible for selecting and managing the group of preferred/approved suppliers (often referred to as strategic). Supplier management, usually the task of strategic procurement, can vary from organization to organization but the goals are usually universal in that it is centered on optimizing the supplier portfolio, building long-term sustainable relationships in order to meet the need of the business.
Associated activities can be quite wide ranging – there are however some fundamental ingredients – here we list our 5 key ingredients of supplier management (be sure to use the comments section to list your essentials.)
1/ Supplier performance
For us the number one role of the supplier management is ensuring that the performance of approved suppliers meets the requirements of the business. Traditionally derived from QCD measures – supplier KPI’s are an essential part of any supplier review process – and it doesn’t just end at the metrics themselves, results should also feed into a continuous improvement program that should help develop and improve suppliers performance.
2/ Supplier rationalization
Many organizations have too many suppliers – ensuring the right mix of suppliers (who have the right capability and capacity) that meets businesses requirements is usually an ongoing activity. The approved supplier list is constantly optimized to derive value for money and reduce risk for the buying organization.
3/ Supplier development
Supplier development activities help align supplier performance (and capability) with that of the buying organization. A thorough development process will usually include the management team of the supplier with activities that move towards achieving specific goals of the buying organization.
4/ Benchmarking
Benchmarking is the study of other organizations business practices and culture in order to use the knowledge gained for business improvement. In a wider sense – benchmarking programs can include large numbers of suppliers who can share the information gained for mutual benefit.
5/ Ethics
From environmental policies to corporate ethics – any supplier management process should review the ethical qualities of its supply chain. Recent exposure of issues such as child labor practices shows the negative impact that getting this wrong can have on your public relations and ultimately customer retention.
Jun
3
The Evolution of Supply Chain Management Software
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Supply chain management software has become one of the most significant segments of the software market – AMR research estimates the market currently valued at $6Billion this is set to rise to $8Billion by 2010. It goes without saying that with this level of expenditure there is intense competition within the marketplace with many providers offering a variety of solutions and toolsets. It’s sometimes easy to forget in this cut throat world of supply chain management software, dominated by the likes of SAP, i2 and Oracle that the software itself has come an awful long way over the last 30 years.
Back in the 1970’s software systems were a new approach in particular to the planning and scheduling of material requirements. MRP evolved to MRPII and software companies (particularly the likes of IBM which bundled the software with it’s mainframe systems) sought to base it’s toolset around the concepts of inventory and supply chain. With this toolset linked to powerful databases, high volume transactions could be administered with greater efficiency and control. Business saw the potential and a software market was born.
The user environment in these early systems was very crude and transaction focused in comparison to the rich clients that systems utilize today – PC technology would go someway to improve this but it wasn’t until the client server technology took off that ERP’s as the systems had collectively been termed could be truly embraced by the user.
Functionality has improved exponentially since these early systems with greater emphasis being placed on empowering users through access to information. Functionality is also being driven by organizational needs. Business has changed over the last 30 years both culturally and geographically, companies have splintered across time zones and continents with multiple distribution channels now commonplace. Modern Supply chain executives face increasing pressures of globalization, obsolescence, pressing business strategy’s for collaboration and the old chestnut of cost control – coupled with common issues of reducing lead times and inventory while still conducting the day job of leveredging spend on suppliers. Supply chain management software is now the support unit that must bring all these issues together.
Connectivity has been a substantial driver in what can be achieved by supply chain management software. In today’s world of internet connectivity applications can be opened up to allow the whole supply chain to collaborate, radically changing the face of forecast and planning whilst providing “open book†insight into performance measures.
The effect of globalization has had various effects on the supply chain – not only has it spread the base of suppliers – but it has also spread requirement and inventory. Today’s supply chains commonly manage global commodities – with inventory spread across time zones, but with the need to manage stock information in real time with a seamless interface with the customer.
In support of this communication methods have developed at an alarming rate from the introduction of EDI standards in the 1970’s which resulted in the opportunity for large efficiency gains – to today’s internet and XML web-services and trading portals which can bring large numbers of suppliers together at the click of a mouse.
Perhaps the biggest significant difference between today’s supply chain management systems and their ancestors is that today’s software must do much more to aide knowledge workers and decision making – information is a key deliverable in today’s ERP. There has also been recent growth in supplier relationship management and risk tools – this is symptomatic for medium to large organizations which may have trouble controlling supplier activity across multiple buying domains.
Following dominance of largescale solution providers such as SAP, the marketplace is seeing some diversity with many niche software companies providing software targeted at specific tasks – for example the industry has seen significant growth in software that helps large organisations analyse spend and supplier relationships – supplier relationship management software doesnt process transactions (which differentiates itself from ERP solutions) but solves a specific problem for supplier chain executives – there are a variety of other individual toolsets from stock optimization tools, through life management solutions, integration applications, sourcing tools. These tools are available often at a fraction of the cost of ERP packages are often more tuned to the specific needs of executives and knowledge workers within the supply chain. While the large scale ERP solution remains popular – high costs and lenthy implementations have provided the niche tool provider an in-road into many organisations.
So, supply chain management software has come an awful long way from the worlds of purely transactional software. Tomorrow’s systems will aim to satisfy the needs of supply chain strategy looking for knowledge and control over increasingly diverse supplier relationships and inventory portfolios. One thing is for sure, software lifecycles have dropped considerably from their inception from decades to perhaps months – we can the systems of tomorrow to look different from today – with more tools and increasing levels of functionality – the supply chain market will remain cutthroat for a little longer!