Driven by the outsourcing of product development capabilities, declining margins and increasing buying professionalism, firms gradually enter buyer-supplier relationships that are collaborative rather than transaction-based. While the general perspective on supplier engagement shifts from being cost-centered to value-focused, the development of an effective approach towards Supplier Relationship Management (SRM) has remained high on the CPO agenda, and not without reason. Profound SRM can yield significant benefits, including more innovation, shorter time-to-market, greater opportunities for cost reduction and larger spend control. To capitalize on these potential benefits, firms continuously develop new approaches for collaboration and information sharing with suppliers, including a range of digital tools. Recent Capgemini Consulting research has identified four major trends in SRM, supported by various digital technologies:
Figure 1: Current trends in SRM
1.Strengthening supplier bonds – supplier collaboration in product development
In many industries, waves of increased specialization and outsourcing of non-core competencies have been witnessed over the past decades. As a result, firms depend more than ever on the innovative capabilities of their supply base, and the continued success of the entire supply chain requires Procurement and suppliers to be involved early on in the product design and development stages. Here, firms can tap into the knowledge of their suppliers to help avoid design-level errors and unnecessary costs, to drive idea generation regarding value-added product characteristics, to improve quality and to shorten development time.
High-profile development projects can benefit from digital tools that facilitate buyer-supplier collaboration, which are offered by a variety of technology firms. Examples are SAP, which has launched software for Integrated Product Development (IPD) and IBM, which has released a Product Development Integration Framework (PDIF). These tools aim to enable idea generation and information exchange, monitor development progress and synchronize communications between suppliers, Procurement and different internal customers as they work together on innovations.
2.Opening up the business – using open innovation and crowdsourcing to stay ahead
Open innovation and crowdsourcing are emerging as platforms for engaging with suppliers and fostering innovative potential. Open innovation is viewed as making use of not only internally developed, but also externally sourced ideas to accelerate innovation. Simultaneously, the paradigm holds that inventions that are not used within the firm should be continued outside the firm’s boundaries, e.g. through licensing or spin-offs. This enables firms to benefit from a rich landscape of valuable knowledge and innovations that were earlier kept away from the market.
Within the realm of open innovation, crowdsourcing is seen as a useful mechanism for gathering ideas, innovations, and information from a specific population, typically via the internet. While crowdsourcing is often used with consumers to identify and respond to ‘market pull’, the approach is seeing an increasing adoption with suppliers in order to develop and ‘push’ new products to the market. Firms such as Wal-Mart, featuring its “Get on the Shelf” program in which customer could vote which new products should be sold on walmart.com, have successfully deployed digital platforms to draw upon their suppliers’ ideas and expand their product range with innovative products.
3.Crunching the numbers – using advanced sourcing analytics to your advantage
Sourcing and procurement functions are slowly moving away from a cost reduction to a value generation focus. Whereas cost structure analyses have become commonplace, advanced sourcing analytics that reveal opportunities for value creation can provide organizations with renewed competitive advantage. These tools can tell organizations what is happening in their business and how well they are servicing its needs. Advanced sourcing analytics covers three main areas:
spend analysis, which leads to higher spend visibility and compliance. This enables identification of opportunities for spend consolidation or for engaging in partnerships with key suppliers.
sourcing optimization, which includes advanced bid analysis, inventory analysis and vendor managed inventory analysis. This enables companies to identify new vendors, reduce inventory and improve the bidding process.
- supply risk assessment, which allows the procurement function to assess financial and operational risks within the supply base, and to design effective measures to anticipate (pro-active) or counter (reactive) threats to the firm’s supply.
One example of powerful sourcing analytics is Sourcemap, a tool that can be used for supply risk management. In this application, firms can enter data about material types, quality levels, lead times and sourcing locations, while suppliers are also invited to add additional information in order to map the sub-tier supply chain. Based on this information and external sources, Sourcemap visualizes end-to-end supply chains in real time, identifies the ‘weakest links’ in firms’ global supply chains, and sends automated alerts in case of potential supply disruptions. Ultimately, this enables firms to anticipate and respond to supply threats in time, and to build more resilient supply chains.
4.Tuning in to the market – using social listening to become more responsive
By being sensitive to what is happening in the digital environment, firms can better stay on top of supply trends and anticipate more effectively to opportunities and threats. To no surprise, social listening, or the mining of data from social media and other forms of digital communication, has seen wide application by marketeers in recent years. However, its use in the supply chain context is still at an early stage. Only slowly, firms are starting to see social listening as a promising means for monitoring and responding to developments in the upstream supply chain. Firms such as Lockheed Martin and Home Depot have already deployed supplier platforms in which the firm and its suppliers can share best practices and discuss problems and promising market developments.
Supplier Relationship Management is undergoing rapid development. It is no longer about minimizing the cost of separate transactions, but about maximizing the value of the complete supplier engagement. Leading procurement executives begin to recognize that, to stay ahead, they must develop collaborative and truly value-focused partnerships with their key suppliers.
Digital technology and big data are major drivers for these developments and will continue to change the way supply chain partners collaborate, by providing companies with enhanced visibility and opportunities for more advanced analytics. To keep abreast of these developments, leading organizations must apply appropriate digital tools and develop the necessary capabilities to derive meaningful information and insights from across the entire supply chain. This will only become more and more important given the increasing complexity of the supply chain of tomorrow.
For a more detailed view on this subject and for more concrete examples, please refer to the Capgemini Consulting SRM Study 2016-2017.