The disruption caused by the COVID-19 pandemic has certainly increased the awareness among manufacturers for improved communication and collaboration with suppliers. In the past months, many suppliers have seen operational disruptions due to new ways of working, temporary factory closures, unaccustomed safety-hygiene measures and other factors that impact manufacturers. As a result, improved integration and connectivity between manufacturers and suppliers is increasingly important to avoid premium freight costs, missed shipments and subpar supplier relationships.
Manufacturers require integrated supplier management to ensure the timely flow of goods and information. Manufacturers that rely on suppliers around the globe to deliver innovative products, drive critical supply chain processes and ensure a positive customer experience need access to real-time data from multiple sources. And research shows that supplier collaboration delivers benefits for manufacturers. One McKinsey survey highlighted that companies which regularly collaborated with suppliers produced higher growth, lower operating costs, and greater profitability compared to their industry peers
Many manufacturers still fail to understand the role supplier integration plays in delivering supply chain process and performance improvements. Buyers and other professionals frequently express a desire for a single source of truth that allows manufacturers and suppliers to make decisions based on the same set of information. This is unlike the scenario where manufacturers rely on manually intensive efforts to exchange procurement information or the case where supply information resides within multiple disparate systems across the manufacturer and supplier. Can you imagine the business benefits from both parties, leveraging the same information, answering questions like: How quickly can the supplier respond to this demand change? Can we quickly divert an inbound shipment to another facility? Have we received an ASN? What is the invoice status? Can the supplier produce a newly designed part in the quality and quantity needed?
The global and disruptive nature of sourcing makes effective procurement management with suppliers more complex. Procuring raw materials and goods from international suppliers involves working in multiple languages and meeting local regulations, resulting in longer cycle times. Relying on manually intensive processes increases risk and the likelihood of stock outages. Multiple risks exist for manufacturers relying on manual and outdated supplier collaboration processes:
- Carrying too much inventory to address potential supply disruptions
- Excessive premium freight charges to meet customer delivery expectations
- Inability to accurately track and trace purchase orders, shipments, receipts and invoices
- Lack of process alert capabilities resulting in costly responses to unexpected supply disruptions
- Inability to accurately measure and track supplier performance
Integrated Supplier Management Benefits
Various supplier communication capabilities exist, beyond EDI, to address integration requirements with global suppliers. As a first step, a supplier portal is an agile and digital approach to supplier collaboration resulting in improved supplier performance, enhanced data quality and better supply chain decisions. As validation, a global automotive supplier identified the following benefits resulting from QAD Supplier Portal:
- Increased inventory turns from 40 to 70
- Reduced inventory by 25% and eliminated shortage and overage problems
- Cut missed deliveries by 90%
- Dramatically lowered premium freight costs
- Streamlined invoicing processes and adherence with payment terms
Suppliers Share in the Benefits
Supplier networks are evolving with the adoption of digital technology. Both manufacturers and their suppliers benefit from more direct and digital collaboration. While suppliers share in some of the process, efficiency and visibility benefits highlighted above, suppliers also achieve economic business outcomes that can include:
- Improved cash flow resulting from quicker payment cycles
- Resource savings by automating business processes
- Increased revenue with more productive customer support and enhanced supplier performance
- Lower costs by avoiding service level agreement penalties
Manufacturing executives are increasingly seeking innovative ways to better leverage supplier relationships and address supply disruption at many levels. Integrated supplier management is a key approach to better connect manufacturers with suppliers and the extended supply chain. The result is a foundation for continuous efficiency improvements, cost reductions, risk mitigation and improved go-to-market times. How effective are your supplier connectivity strategies today, and how well can you coordinate with suppliers to address unexpected business disruptions?