Is the economy coming back? No one knows. For manufacturers, it feels like a bad rollercoaster ride. For everyone, the temptation is to focus on the wrong thing, like cost-cutting. Yet evidence consistently shows that examining supplier relationships and making them more transparent, is the fastest path to better controls, and fundamentally, more profit.
What You Don't Know CAN Hurt You
It starts with knowing how much you're spending with each supplier. Supply chain visibility is a best practice that allows manufacturers to succeed during a recovery period and to prepare for a potential double-dip recession. Supply chain visibility helps to:
- Consolidate the supply base
- Capture savings
- Improve overall efficiency of the supply chain
- Provide actionable business intelligence
While purchasers may not have the visibility they need, they are taking strides in the right direction. Many companies purchase the right tools and have the right data at their fingertips; they just don't know how to best use the tools or how to interpret the data. Hundreds of others are still wedded to out-dated, homegrown systems and spreadsheets. Purchasing the right tools is where the claim to credit stops. Despite investing millions in purchasing tools, manufacturers fail to fully integrate the tools or train teams on how to fully exploit their power.
Not knowing enough about the suppliers, including tier two and three suppliers (which are harder to track and most likely to cause disruptions), can lead to costly oversights such as:
- Paying too much for materials because there's no consolidated buying
- Permitting each division to 'own' its own purchasing leads to lost discounts when the left hand doesn't know what the right hand is doing
- Inconsistent or customized contracts that could be standardized
Best Practices -- For Good Times and Bad
Believe it or not, four relatively simple steps bring supply chain visibility and operations to the next level. All four lead to more transparency for better decision-making:
- Identify all in-house databases containing supplier information, where the touch points for the databases lie, and who has privileges to update information in the databases (users, company executives, middle management, suppliers, etc.)
- Eliminate duplicate records within the supply base. Some suppliers may have numerous contracts with one company under several divisions. Consolidate those records and create a single source-of-truth for supplier information.
- Determine how critical each identified supplier is. This is typically based on the amount of spend earmarked for the supplier, whether or not it is a single sourced supplier and how critical the goods it provides are to the overall operation of the supply base.
- Confirm the accuracy of the supplier information by cross-referencing it against data in the company records or by confirming it with outside parties.
Gaining visibility is surprisingly straightforward -- especially compared with economic recoveries and double-dip recessions. When there's a cost-effective best practice that works in all economies, why delay?
Jim Kelly, C.P.M., CEO of JVKellyGroup, Inc. (http://www.jvkg.com/) provides cost reduction and risk mitigation solutions to help companies ensure their spend is effectively analyzed, sourced, managed and monitored.
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