5 Steps for effective supply chain management

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Steps for EffectiveSupply ChainManagement
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5 Steps for Effective Supply Chain Management

• We live in difficult times where volatility is
  the norm. For any business leader today the top
  challenge is cost. As business leaders across
  industry sectors work towards realizing cost
  efficiencies, with millions of dollars at stake,
  the role of sourcing has become very important.
• Coupled with fears of W shaped recession,
  financial crisis in leading economies, fiscal
  cliff in US - cutting the gross domestic product
  (GDP) by four percentage, and political and
  natural uncertainties, CPOs today are compelled
  to go back to the drawing board to rethink
  company's sourcing strategy.
• Facts
• US economy likely to have a negative growth rate
  in 2013 on account of impending fiscal cliff i.e.
  implementation of the Budget Control Act of 2011
• Greece's ongoing economic contraction increasing
  the unemployment rate to 21.9 in March 2012,
  while the unemployment rate in Spain was reported
  to be 24.6 for May 2012
• Peter Morici, an economics professor at the
  University of Maryland's Smith School of
  Business, estimates Sandy will result in 35
  billion to 45 billion in total losses
• Other costly storms are Katrina causing damages
  more than 46 billions, Andrew resulting in loss
  of nearly 25billions and Ike with more than 10
  billion loss

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• Given the events of the past five years financial
  crisis, natural disasters and massive supply
  chain failures, to name just a few procurement
  will need to push aggressively for the inclusion
  of supply chain risk on the broader business
  agenda in order to protect the business from
  uncertainties and turbulence.

Supply chains cannot tolerate even 24 hours of
disruption. So if you lose your place in the
supply chain because of wild behavior you could
lose a lot. It would be like pouring cement down
one of your oil wells. - Thomas
Friedman, American Journalist, Columnist and
Author
Today with supply base having gone global, the
procurement function has become too complex to be
handled efficiently through traditional manual
processes. With so many uncertainties, defining
company's sourcing strategy and becoming the
customer of choice for the suppliers during
difficult times is a challenging task. Companies
have started to focus on technology to simplify
this complex process of sourcing and supplier
management. However, the technology adoption rate
in procurement is still low.
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• As per a recent study conducted by Zycus
  including nearly 600 procurement professionals,
• Companies in the lowest savings performance tier
  score technology adoption and use between 4 and 5
  on a scale of 0 - 10
• Companies in the top savings tier score it at 7
  on a scale of 0 - 10
• Average technology adoption is at 6 on a scale of
  0 - 10

The unprecedented increase in supply chain risks
has forced organizations to bring in more agility
into their supply chain processes. Agility
enables organizations to prepare in a much more
proactive manner to avert huge financial losses
arising out of costly supply disruptions.
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This whitepaper will focus on the 5 key steps to
effective supply chain management and the role
technology plays in achieving these imperatives.

• SUPPLIER DISCOVERY
• Finding a suitable competitive supplier is
  fundamental to the success of a sourcing
  strategy. With globalization, it is no longer
  efficient to limit your supply chain to one
  country or location.
• An effective supplier discovery process helps to
  find a new supplier which increases a company's
  sourcing leverage and gives an opportunity to
  evaluate different suppliers across markets /
  geographies based on their capabilities.
• Company can follow multiple best practices.
  Traditionally companies referred to supplier
  registry or external networks to scout for
  suppliers. Using these traditional methods for
  selecting a supplier can be tedious, complex and
  time consuming. Today companies are using
  sourcing tools and also, engaging with the
  suppliers early through supplier portal. With
  advanced sourcing tool the benefits are
  multifold. Along with drastic reduction in time
  to search suppliers, companies are able to get
  the right suppliers based on the parameters they
  set.

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• The natural disasters of the recent time affected
  the facilities of numerous suppliers which
  impacted businesses across vertical which
  depended on suppliers from the affected areas. An
  example here is the impact the electronics
  industry faced with the earthquakes in Japan.
  With supplies shut down, businesses needed to
  identify alternative supply sources within a
  short time period in order to ensure business
  continuity. The common challenges faced in this
  case include
• Long cycle time for building supplier list
• Cumbersome process of supplier validation and
  evaluation
• Implementation of a supplier management solution
  would enable sourcing managers to create and
  manage a centralized supplier data repository.
  This would facilitate screening of potential
  supplier's based on pre-defined criteria and
  maintain a list of pre-qualified supplier's for
  new/existing sourcing initiatives, which we will
  discuss in our next step.

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• SUPPLIER QUALIFICATION
• The sourcing team should be aware of unscrupulous
  suppliers entering the supply chain and providing
  substandard raw materials. In recent times there
  have been multiple cases of companies having to
  face the heat on account of wrong supplier
  practices. A few examples are,
• HM, a fashion retailer was asked to sever ties
  with suppliers sourcing cotton from Uzbekistan
  where child and adult forced labor is prevalent.
• Levi's and GAP, clothes manufacturers had to
  scrutinize their supply chain in China as their
  manufacturing process was polluting watersheds in
  China with hazardous cancer causing chemicals.
• This situation signifies the need for supply
  quality and cost assurance by implementing a
  preliminary round or a qualification stage to
  screen the suppliers. Sourcing teams should have
  a predetermined screening process that every
  supplier registering on the supplier portal
  should go through. This helps in eliminating
  suppliers who do not compliment company's
  purchasing policies.

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• Companies can have a questionnaire to judge the
  suppliers. The questions can vary depending upon
  the project requirement. Each question can be
  given weightage depending on the project needs
  and complexity and can be assigned score ranges.
  Some of the qualification questions can be,
• What is your employee strength?
• Do you have a formal framework of risk assessment
  and improvement?
• How often is this tested?
• Do you have your own data centre? etc.
• Depending on the answers, qualification score is
  calculated and as per the benchmark set, the
  supplier is either qualified or disqualified.
  Apart from the questionnaire, the suppliers also
  need to satisfy credential requirements like
  mandatory certificates, audit requirements etc.

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• SUPPLIER SELECTION
• It is imperative for companies to select the
  right suppliers who not only provide
  items/services at a competitive cost but also
  possesses the ability to reduce impact of
  economic uncertainties/natural disasters on the
  organizations supply chain/sourcing strategies.
• All stakeholders should be involved in the
  supplier selection process to ensure transparency
  and make evaluation process more objective.
  Standardizing the requirements and specifications
  in the form of a template, makes the process more
  repetitive and effective.
• The shortlisted suppliers after the qualifying
  round are evaluated on different parameters or
  scenarios like choosing a supplier from a
  particular geographic location or working with
  minority suppliers (women, backward class etc).
  Implementation of a sourcing tool allows sourcing
  managers to run custom scenarios on the bids
  received from suppliers based on the business
  constraints. Sourcing managers can optimize bids
  not just based on the lowest price but on a host
  of non-price parameters like service delivered,
  reputation etc to arrive at the best possible
  supplier to award the contract.
• After performing the required analysis the most
  competitive supplier complying with the company's
  purchasing policies is awarded.

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• SUPPLIER ONBOARDING
• Supplier onboarding refers to the process where
  finalized suppliers are equipped with the
  necessary knowledge and behavior to become a part
  of the company's supply chain. A supplier is
  required to submit various mandatory certificates
  and documents related to company registration,
  insurance, diversity certificate, quality
  certificate etc.
• The supplier portal makes the onboarding process
  simple and less time consuming. It helps the
  supplier to upload the required documents and for
  the buyer company to keep a track of it by
  installing approval workflows. It also enables
  maintaining an audit trail to check compliance
  requirements. For instance, submitting the tax
  documents before starting the business or a
  background check of the supplier.
• Thus automating the onboarding process reduces
  the overall cycle time and helps buyer companies
  to track compliance of the process.

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• SUPPLIER PERFORMANCE EXPECTATION MANAGEMENT
• The potential supplier has cleared the qualifying
  and selection stage, the contract terms and
  conditions have been negotiated and agreed upon
  and the supplier has now become a part of the
  company's supply chain. It is now very important
  for the company to keep a check on the suppliers'
  performance vis-à-vis the set benchmark or Key
  Performance indicators (KPIs) viz. product
  quality, innovation, on-time delivery, carbon
  emission etc.
• Companies should have a supplier segmentation
  strategy to bucket the suppliers based on for
  instance, criticality in the supply chain or
  total spend. After the segmentation, KPIs should
  be determined and assigned a particular weightage
  for each bucket and the supplier performance must
  be reviewed based on the scores generated.

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• If the performance of a supplier is not
  satisfactory, the suppliers can be put through a
  development program to ensure the suppliers move
  towards the preferred score and meet the
  objective of the organization. The supplier
  management tool must enable the buyer company to
  develop and manage supplier development program
  to drive the suppliers towards a preferred score.
• Through supplier performance and expectation
  management, companies can build a strategic
  relation with their suppliers whereby they become
  the customer of choice for the suppliers.

Conclusion
For effective supply chain management, companies
should follow the 3 tenets Transparency,
Accountability and Continuous Improvement. A CPO
wanting to create advantage from the supply chain
needs to leverage on technology to account for
the uncertainties while determining the strategy
- to find potential suppliers, sort them, and
determine the relationship with the supplier
transactional, collaborative or strategic
evaluate the supplier performance on pre
determined key performance indicators and decide
whether to drop the supplier or nurture the
relationship.
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About Zycus

• At Zycus we are 100 dedicated to positioning
  procurement at the heart of business performance.
  For
• more than a decade we have been the world's most
  trusted leader in Spend Analysis. With our spirit
  of
• innovation and a passion to help procurement
  create even greater business advantages, we have
• evolved our portfolio to a full suite of
  Procurement Performance Solutions Spend
  Analysis, e
• Sourcing, Contract Management, Supplier
  Management, and Financial Savings Management.
• Behind every Zycus solution stands an
  organization that possesses deep, detailed
  procurement
• expertise and a sharp focus on being responsive
  to customers. We are a large 600 and growing
• company with a physical presence in virtually
  every major region of the globe. We see each
• customer as a partner in innovation and no client
  is too small to deserve our attention.
• With more than 200 solution deployments among
  Global 1000 clients, we search the world
  continually
• for procurement practices proven to drive
  competitive business performance. We incorporate
  these
• practices into easy-to-use solutions that give
  procurement teams the power to get moving quickly
  
• from any point of departure and to continue
  innovating and pushing business and procurement
• performance to new heights.