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The Four Core Functions of Strategic Supplier Management Needed to Manage the Shifting Line of Accountability Deeper Into Your Supply Chain:
There is a trend in the industry that is moving the line of accountability from within the Client’s walls – deeper into their supply chains. We have seen this traditionally in outsourcing deals, where Clients are deeply reliant on their supply chains for entire integrated business processes – but with the emergence of Software-as-a-Service (SaaS) and Cloud Computing, NET(net) is seeing a deeper level of need for an integrated and managed supply chain in what used to be more captive areas of spend for hardware and software.
Let’s face it, most large services deals (systems integrator deals, outsourcing deals, etc.) fail for a combination of the following two reasons:
1. Bad Contracts: Most contractual services agreements do not adequately align customer and supplier goals, ambitions, and incentives (customers want things to be simple, quick, affordable, and discrete, while suppliers want things to be complex, take a long time, cost a lot of money, and never end).
2. Bad Supplier Management: Clients generally lack the internal controls necessary to govern supplier performance, and lack the dials and instruments needed to effectively tune performance and remedy these situations through effective relationship management.
It’s a common misperception that these types of projects fail due to supplier incompetence. However, supplier incompetence is rarely the only reason that these projects fail. A more common reason is that our Clients lack Strategic Supplier Management capabilities that can help Clients intelligently monitor and proactively manage suppliers in a way that optimizes both economic and strategic value.
What’s needed in this new world of an integrated and managed supply chain is Strategic Supplier Management (SSM). Strategic Supplier Management is made up of the following four business processes:
1. Supplier Contract Management (SCM) – intelligently loading and proactively managing contract terms and conditions, alerts, events, milestones, obligations, reporting requirements, etc.
2. Supplier Relationship Management (SRM) – logging disputes and actively tracking and managing issues in a collaborative fashion with the supply chain.
3. Supplier Performance management (SPM) – monitoring and managing supplier service level agreement, and tracking and managing engagement deliverables for conformance to Client acceptance criteria.
4. Supplier Financial Management (SFM) – projecting and managing expected cost structures, and reconciling invoices to contractual terms and conditions – remediating any discrepancies.
Most Clients believe they have an excellent Strategic Sourcing capability – and in yesterday’s world that may be true. However, in tomorrow’s world, with a more diverse supply chain of more outsourcing providers (the world outsourcing market volume has stayed the same, but the number of transactions has tripled), SaaS providers, and Cloud Computing providers, there is no defined industry capability for operational integration. In the traditional model, systems integrators (SIs) implemented enterprise software packages and helped Clients customize and integrate these solutions into their environments. In tomorrow’s world, where a Client is running Salesforce.com on Amazon’s EC2 and is using Dropbox for document management, Taleo for talent management, Concur for expense management, TimeLedger for Time Management, Dovico for Project Management, and Workday for HR – how are they to know how their suppliers are performing? The big gap in the industry is this lack of operational integration.
Operational integration is the ability to integrate your supply chain into your core operations and business processes. When this was done through monolithic deployments of platforms and software in the traditional sense, business processes were “integrated” given the relative simplicity of the supply chain. In tomorrow’s world, this will be all but impossible, because platforms will differ greatly, software code bases will not match, and there will be very little out-of-the-box integration between SaaS providers and/or cloud computing platforms. Bottom line, there really are no suppliers out there today who offer this capability. Therefore, in the near term at least, Clients will be forced to build this capability for themselves. What better way to manage this gap than with a proven methodology for Strategic Supplier Management, complete with optimized business processes, and proven tools and templates to help you understand how to strategically manage your supply chain so that you can get maximum value.
With the contract now becoming the link between Strategic Sourcing and Strategic Supplier Management, it will require Clients to possess a new world-class capability in Strategic Sourcing – one that is different from what they have today.
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At NET(net), we offer strategic sourcing and strategic supplier management services, and help our Clients in virtually all geographies and industries find, get and keep maximum value in their supply chain. To date, we have helped Clients capture over $50 billion of value globally. Contact us today by email at info@netnetweb.com or by phone at 866-2-NET-net.
