White Paper. Micro Going to the Source: Supplier Relationship Management. Optimizing Across Six Guiding Principles

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1 White Paper Micro Going to the Source: Supplier Relationship Management Optimizing Across Six Guiding Principles

2 Table of Contents 1. Building Trust in Your Supplier Relationships and Working with the Partners Developing the Product with Better SRM Cost Reductions Make the Price Finding the Place for Sourcing Beating the Clock Just in Time Compliance from the Outset

3 Introduction Across the world, sourcing, supply chain, and global trade executives are under intense pressure to streamline their processes in order to stay ahead of the competition and keep their companies in the black. But let s face it it s not easy in this environment: light-speed business, stringent compliance regulations, and consumer demand for more agility than a squirrel on a bird feeder. Today, companies are working in a supply-side pressure cooker with 46% of supply chain professionals across all industries under the strain of rising supply chain management costs. 1 growing complexity of global operations also has 40% of these leaders deeply concerned. 2 Escalating speed requirements and ever-changing regulations are stretching their capabilities to the limit. For all of these reasons, and more, improving the supplier relationship is more critical than ever. Success for retail and consumer goods manufacturing in today s new world order boils down to six guiding principles, or the Rs of supply chain execution, which include: Product Partner Price Working with Compliance Place Time To hit all of the Rs on target, a Chief Supply Chain Officer (CSCO) has to address each functional area of the supply chain to ensure optimal performance. Any organization is only as good as the people that work for it, and this standard extends to the supplier base and business partners as well. 1 Aberdeen Group. August Aberdeen Group, August

4 1. Building Trust in Your Supplier Relationships and Working with the Partners Suppliers are a retailer s or manufacturer s most valuable asset. About 50% of supply chain professionals expect their number of global suppliers to increase by more than 10% over the next few years. Only 14% expect the number of global suppliers in their network to shrink by 10% or more. 3 Adding new suppliers means higher costs, as old suppliers are rotated out and others are onboarded. Supplier relationship management (SRM) has gone through a massive transformation. Gone are the days of finding the best deals within a supply base. Today, multiple complex factors affect how retailers and manufacturers choose and manage their suppliers. Partner new approach to SRM necessitates the creation of partnerships that extend beyond cost-cutting and offering value-added services and resources. Leading consumer goods manufacturers and retailers must retain suppliers who have a vested interest in the long-term success of the business. Brands who focus on mutually beneficial SRM programs lead their peers five to one when it comes to the value derived from their supply base. 4 A successful SRM program begins by developing a high level of trust with suppliers approaching the partnership with the same attention and care that brands use when approaching their customers. y must earn their suppliers trust through open communication and early involvement in all processes (starting early in the planning stages through development and production) to ensure the suppliers become vested partners. True partnerships are mutually beneficial, and retailers and manufacturers aligned with their suppliers will experience higher success rates, decreased risks, and enhanced collaboration and innovation. Studies show the top organizations that have successfully aligned with their key suppliers have reduced risk factors and improved innovation, quality, reliability, and costs/price reductions. 5 Both sides of the business can achieve greater value; a difficult achievement if operating independently. Luckily, new technology today helps automate and simplify the SRM process, making it easy for sourcing executives to make quick, informed decisions about their suppliers. Full and unparalleled visibility into the supplier base gives a company a detailed picture of what is impacting the supply chain, making it costeffective and painless to mitigate risk. For that reason, smart manufacturers are investing in the right supply chain technology. Cloud-based supply chain software, already prevalent in most areas of sourcing and production, is predicted to increase, with over 90% of spending on supply chain execution systems to be on cloud-based solutions by need for visibility, scalability, and flexibility across the value chain will drive 60% of manufacturers to invest in cloud-based solutions aligned to their supplier networks by the end of By the end of 2018, 25% of manufacturers are expected to implement a micro-logistics strategy to support more distributed inventory management. 8 A micro-logistics strategy involves a more customer-centric approach to fulfillment, with a more distributed fulfillment network to better position inventory to drive rapid delivery and responsiveness into the supply chain, in large part by operating a greater number of smaller, regionally specific distribution centers. 9 3 Supply Chain Digest Global Sourcing and trade Management 4 CIPS, Five Secrets of Supplier Relationship Management, February CIPS, Five Secrets of Supplier Relationship Management, February SupplyChainDigest, Supply Chain Predictions 2016 from the Analyst, February IDC FutureScape, December IDC FutureScape, December IDC FutureScape, December

5 2. Developing the Product with Better SRM A profitable execution of a new product starts with the consumer in mind. But today s buyers require personalized choices, demand lower prices, and expect instant shipment or pickup gratification. se consumers are also fickle. To keep pace, manufacturers have to implement successful SRM best practices that will yield transactional efficiency, risk management, faster time-to-market, and large financial gains that contribute to the bottom line. Instead of fighting for every cent or the best deal from the best suppliers, companies must build communication channels that increase collaboration for successful cost savings. Product Global sourcing technology can be a key enabler of supplier collaboration and profitability. With better supply chain collaboration technology, sourcing teams can connect directly with their suppliers to optimize supply chain decisions and accelerate innovation during the product development phase. Companies that collaborate with their suppliers early in the development process and prioritize decision making in the early phases of the product lifecycle can reduce product costs and gain a 20% improvement in time-tomarket. 10 se best-in-class companies can also match real-time data with historical trends to predict stock outages before they happen and manage replenishment. By automating key process areas such as orders, invoicing, and payment, they can improve the overall efficiency and effectiveness of their supply chain operations. A good supplier portal can help deliver the functions of product lifecycle management and supply chain execution systems in a single solution. This key functionality enables retailers and manufacturers to manage capacity and raw material reservations, global sourcing and costing negotiations, customer and supplier purchase orders, production tracking, and shipment milestones. With this combination of solid processes and technology, retailers and manufacturers can tightly mesh supply chain and global sourcing operations while delivering greater value-chain benefits to the consumer in the way of lower price points and higher quality products. 10 Aberdeen Group Procurement in New Product Development: Ensuring Profit from Innovation. 5

6 TECHNOLOGY ADVANTAGE FOR HIGHER-VALUE SRMS Collaborative supplier relationships can deliver substantial benefits for retailers, manufacturers, and suppliers. Best-performing companies who have embraced collaboration experience up to $300 million worth of benefits each year. 19 Technology can help companies successfully implement effective SRM programs to achieve strong ROI. Improve day-to-day communications Manual SRM management processes such as supplier documentation, certificate collection, and collaborative tracking can be labor-intensive and time-consuming without automation. A web-based, searchable, and centralized data repository platform can streamline and track discussions among supply chain members, dramatically reducing costs and time. Enhance document management A document management portal allows the ability to upload and share documents with suppliers. portal also allows for document version control, as well as systems to measure activity through electronic receipts and other acknowledgments, ensuring that suppliers have accessed the correct document. Centralize accountability through issue assignments and notifications An exception-based time, action, and workflow calendaring system allows users to monitor and update their current responsibilities. Since this information is centralized in one platform, the time it takes to manage workflows is reduced. Manage supply chain issues proactively Many organizations today already record and collect the data they need, but struggle with converting that data into knowledge and gaining insight to prevent problems. Technology can automatically generate alerts based on business rules with an automated escalation feature to ensure proper managerial oversight, including monitoring issues, measuring timelines, and reacting to problems before links in the supply chain break. Optimize supply chain expenditures Supplier portal solutions can help companies increase their supply chain visibility and control, increase supply chain accountability, and accelerate time-to-market through proactive supply chain project management. As a result, reduced risk and improved supply chain efficiencies drive return on investment, adding to the bottom line. By investing in technology, retailers and manufacturers will yield greater value from supplier relationships, gaining increased transparency and communication, minimizing risk, and improving supply chain efficiencies. As a result, better SRM can save hundreds of thousands of dollars in hard currency and hours of soft costs in labor. 19 SCM World in

7 3. Cost Reductions Make the Price About 92% of CSCOs say their top business focus is following corporate mandates to reduce cost or increase savings. 11 But companies must spend money to save money in order to avoid disruptions and gain clearer perspectives of true costs. y must invest in new technologies and in delivering innovation. To justify these expenditures, new investments must help ensure quick wins and relatively short payback periods. This could include migrating from costly legacy systems, moving existing applications to the cloud, adopting new cost-efficient technology, and working with partners to share the costs. Price For some companies, a lack of visibility can result in a 15% to 20% inventory increase to buffer the unknown. Tighter collaboration eliminates the need for that buffer and enables a better view of inventory availability. Better connectivity and tighter collaboration creates more immediate visibility with suppliers and better materials flow. Better sourcing collaboration technology can offer robust online Request for Quotation (RFQ) tools that bring a higher level of efficiency to the sourcing process. With the use of electronic costing sheets that handle multiple scenarios and suppliers, companies can maintain negotiation histories and generates a comparison matrix of all responses. costing sheets can hold detailed information that is necessary to differentiate between suppliers, such as estimated landing cost, materials, and other component costs. With all this data, the product line can be culled down to a group of select items that will yield the highest rate of return or margin. Companies who embrace digital collaborative strategies are seeing real value, boosting revenue more than 9%, market valuation more than 12%, and profitability by over 26%. 12 By ensuring all parts of the supply chain are working together in a smarter way, companies can benefit greatly. Improving the supplier selection and management process, along with proactively identifying production and supply disruptions, means companies can improve supplier performance and accelerate time-to-market. Supply chain collaboration technology can put a company in a position to quickly realize ROI and diversify into new markets to achieve lower costs for its customers A A A 11 Aberdeen, Value of Strategic Supply Data Management July Ariba, Tech trends 2016, Part II: supply chain goes digital, December

8 4. Finding the Place for Sourcing Even with a transformative SRM approach of building partnerships with suppliers, the global sourcing search is still on for lowest cost producers. Rising labor costs and concerns about some governmental policies in China are leading retailers to look at other sourcing options to keep costs low and reduce the supply chain risk from a China-heavy sourcing model. 13 Those options include countries in Southeast Asia, Eastern Europe, and Africa. For instance, apparel companies identified Ethiopia as a top 10 sourcing destination. Wages are on a general upswing, as most emerging markets are committed to paying hikes or face increasing demands from unions to do so. With greater visibility into social conditions, currency fluctuations, increasing unrest, and union demands, wages in traditionally low-cost sourcing countries are on the rise. 14 Place re will be an increase in supplier diversification as sourcing options grow in new low-cost regions such as Southeast Asia and Sub-Saharan Africa. re are a variety of factors behind these moves to expand sourcing options, including product quality, price, supplier capabilities and capacity, the total trading party network (raw materials, parts suppliers, and logistics providers), along with changing dynamics resulting from preferential trade agreements. Apparel brands, for example, are looking at Africa as a sourcing option, and not only for low labor costs. Most African countries can produce raw materials such as cotton, enabling consolidation of finished goods and materials sourcing, something that many Southeast Asia countries can t provide Supply Chain Digest, 2016 Global Sourcing and Trade Management. 14 CBX Software, Global Retail Sourcing Report Supply Chain Digest, 2016 Global Sourcing and Trade Management 8

9 Traceability is also becoming a prominent sourcing challenge, as a larger number of companies have come under fire for improper supply chain practices whether they knew about them or not. With this shift in public perception, companies must address quality issues, ethical challenges, and more concern over forced and child labor practices. A more globally distributed sourcing base will require SRM systems to implement technology across multiple time zones, languages, and currencies. Effective communication and collaboration is challenging but vital for improving supplier relationships. right supplier portal solution will enhance supply chain visibility and control, maximize supply chain accountability, and accelerate speed-to-market through proactive planning. That s where better supplier collaboration technology can once again add value. Supplier portals can include online systems for scheduling quality inspectors and reporting results back to the retailer, raw material reservations with mills and tanneries, and online costing negotiation and sourcing information sharing between retailers, manufacturers, and common agents. Supplier portal platforms can standardize trade and customs documents, consolidate shipment data, and provide a means of collaboration between retailers, factories, agents and logistics providers. This technology can strengthen relationships with suppliers and maximize profit margins by coordinating processes, boosting productivity, and providing greater visibility throughout the sourcing, production and shipment process. 9

10 5. Beating the Clock Just in Time Time is money for importers and exporters, thus a quick and agile supply chain process is optimal. Supply chain experts operate on a much tighter information flow, requiring 69% of information within in a day and 40% of information within an hour. 16 All supply chain professionals will agree that saving time is a competitive advantage. Agility in the supply chain means contending with unforeseen events through the use of lightning-fast decision making. Implementing this approach requires more than just the commitment of those involved. An additional technological component is essential to deal with the unexpected. Time With multiple product lines and revolving customer demands, the sourcing and production phases within the product lifecycle require close collaboration between companies and their suppliers. Strong collaboration enables secure access to data by external suppliers and provides more efficient communication while maintaining tight access control throughout the system. Supply chain collaboration solutions make dramatic improvements among the distinctive internal and external groups by standardizing processes and documents and acting as a central knowledge base to store and share all related data that provides visibility into the entire supply chain process. Unifying all of the people and data in a single solution will result in realistic product costing (leading to greater margins), cycle time reduction, and improved time-to-market speed. 16 Aberdeen Group, B2B Integration and Collaboration: time is Now! Where Do You Stand? June

11 6. Compliance from the Outset No company wants to make tomorrow s headlines because of a supplier issue. About 45% of CSCOs see regulatory and internal compliance on contracts increasing. 17 Global supply chains can increase product innovation while balancing compliance risks and costs with shorter product lead times. Companies must perform risk assessments at the sourcing level and in the contract management phase of a supplier engagement to improve compliance. By providing the right technology and services at the origin of the supply chain, brands and their suppliers can effectively collaborate earlier in the supply chain. Compliance A proper supply chain collaboration solution can create seamless communication between all parties and help with real-time visibility early in the commercialization process, create more multi-channel communication, increase adherence to compliance standards, and overall improve internal and external collaboration. While 79% of companies are likely to perform a risk assessment as part of the sourcing process, 18 most do not have the necessary in-house expertise to address every area of risk across multiple geographies, products, and regulatory issues. As a result, they need to incorporate third-party information as part of the risk assessment process. Sourcing Still Risky Business While Vietnam and Bangladesh continue to be the fastest growing exporters among the top 10 U.S. trading partners, structural risks run high in both countries. Vietnam saw modest growth into the second quarter of 2016 with more new orders and increased exports, namely by consumer goods producers. However, the country is the highest risk country for structural issues, with 71% of structural audits finding facilities at risk or needs improvement. 20 Bangladesh suffers from unauthorized factory expansions or additions, with a demand for structural audits in the country tripling in the first quarter of Under increasing scrutiny, the apparel industry is being pushed to improve quality and safety across all ranges of garments. For example, apparel brands used to focus their metal control efforts ensuring no unwanted or potentially dangerous metal pieces are left on a garment on the most important product categories like baby wear and underwear. However, a sizable 87.5% of apparel brands failed metal control audits in early 2016, 22 requiring a sharp increase in detection efforts across all garment types. By investing in technologies that enhance collaboration across production and quality control, supply chain professionals can improve their company s supply chain efficiency, compliance, and safety. 17 Aberdeen Group, Value of Strategic Supply Data Management July AsianInspection AsianInspection AsianInspection Aberdeen Group. 11

12 appropriate combination of compliance, risk, and quality management information can save a brand name from being tarnished. It will ensure that produced goods meet international regulatory testing requirements, brand specifications, and social compliance standards, with the comprehensive functionality to manage component and product testing, auditing and finished goods quality inspections. ability to create and maintain a risk assessment program depends on whether you can enrich your existing supplier data to gain a complete view of the supplier. A company must first understand the fundamental capabilities of its supplier to provide the goods. However, to provide a complete assessment requires a financial perspective, sustainability and competitive evaluation, and a strategic direction analysis. n, classifying and mapping information is essential for analysis and reporting in order to make the right decisions. Conclusion Products and requirements will constantly change to meet consumer needs, production changes, and sourcing challenges. Companies need to implement proactive strategies to collaborate with their suppliers earlier in the product development lifecycle, with a greater focus on rapid product design, collaboration, and delivery for measurable impact on top and bottom lines. y must leverage enterprise data for improved decision-making related to product development, material selection, costing, and supplier selection. Industry surveys consistently show that sourcing executives at all levels are desperately seeking to increase visibility into their supply chain so they can synchronize their complex, multi-tier supply chain operation across many geographies and partners. With higher degrees of real-time visibility, they gain appropriate control of their suppliers, enhanced product allocation, uplifted revenue, reduced inventory costs, better customer service, and reduced supply chain risk. Optimizing across the six R s of supply chain execution, companies can leverage their technology investments to enhance their expansive global supplier networks. By taking these steps, companies can track every step of the process and gain access to proactive alerts to potential problems. A single collaborative solution will unify critical product, cost, and supplier information and connect vendors with internal sourcing and global trade management teams to collaborate on tasks from one end of the supply chain to the other. About Amber Road Amber Road s (NYSE: AMBR) mission is to dramatically transform the way companies conduct global trade. As a leading provider of cloud-based global trade management (GTM) software, trade content and training, we help companies all over the world create value through their global supply chain by improving margins, achieving greater agility and lowering risk. We do this by creating a digital model of the global supply chain that enables collaboration between buyers, sellers and logistics companies. We replace manual and outdated processes with comprehensive automation for global trade activities, including sourcing, supplier management, production tracking, transportation management, supply chain visibility, import and export compliance, and duty management. We provide rich data analytics to uncover areas for optimization and deliver a platform that is responsive and flexible to adapt to the ever-changing nature of global trade. One Meadowlands Plaza East Rutherford, NJ (T) (F) Solutions@AmberRoad.com 2018 Amber Road, Inc. All rights reserved.