A quiet revolution is occurring in supplier management. Manufacturers, distributors and retailers of all sizes and shapes are changing the way they manage their day-to-day interactions with their direct material suppliers.
According to a recent survey undertaken by Aberdeen Group and Logistics Today, 60% of responding companies report that improving the way they connect to, coordinate with and monitor suppliers is now among their top five supply chain priorities. Two-thirds of companies say they are looking to supplier management improvements specifically as a way to gain advantages in speed, reliability and agility over their competition.
The survey indicates the following key findings:
- Despite the well-documented costs and errors incurred with sending orders and demand signals to suppliers via phone, fax and e-mail, these methods remain the most popular means for supplier communication. However, the tide has turned: Companies of all sizes now prefer Internet-based messaging to connect with new suppliers.
- Sharing planning and scheduling information with suppliers is commonplace, but does not by itself lead to superior supplier performance.
- Companies that monitor six or more domestic supplier events or more than 10 international supplier events are much more likely to achieve extreme performance improvements in lead-time reductions and increased perfect orders.
Companies that are successfully driving out time, cost and defects form their processes have built a strong backbone of supplier management capabilities. These companies make suppliers an elegant extension of their businesses by implementing electronic communications processes with even the least technically sophisticated suppliers, coordinating plans and schedules based on supplier constraints, and monitoring supplier actions at the order level.
Close to 20% of companies say that they have reduced lead times, increased perfect orders from suppliers and lowered transaction-processing costs by 20% or more through their supplier management initiatives. However, the Aberdeen/ Logistics Today study reveals enormous differences in business processes and supporting technologies between average performers and those that achieve best-in-class performance. Companies can take specific actions, such as using event monitoring technology, that will double or triple their chance of achieving 40% or greater performance improvements.
Customer demands for increased responsiveness and delivery perfection, price/margin pressures and the globalization of supply chains have created a challenging business environment for many companies. The Aberdeen/ Logistics Today study finds that companies are reacting to these pressures by improving their supply processes and thereby increasing enterprise flexibility, cost control and customer satisfaction. The chart below spells out the steps that enterprises can take to improve their supplier management processes. LT
Beth Enslow is vice president, enterprise research with Aberdeen Group Inc. The full Aberdeen/ Logistics Today report, The Quiet Revolution in Supplier Management, can be accessed at www.aberdeen.com .
