Why Supplier Collaboration is Essential to Business Growth
Among the top lessons from the current global health crisis is the central importance of close connections with suppliers and the need for solid, near real-time visibility into your transactions with them. This isn’t a new idea, but the pandemic’s impact on global supply chains has created a spotlight that companies would be remiss to ignore. For some, single-supplier reliance has created delays and stock shortages which can only be solved through diversification. For others, skyrocketing eCommerce demand has made it difficult to accurately track inventory movements, while historically based forecasting has been rendered all but useless by unpredictable demand shifts.
Despite rising consumer demands and trends in digitalization, many retailers and manufacturers don’t yet have a formal supplier collaboration strategy in place, but that is changing fast. According to data from McKinsey, companies engaging in supplier collaboration are already outpacing the competition by a significant margin. And even before COVID-19’s impacts, research from APQC showed that 53% of businesses have made supplier relationship improvements a top priority for 2020.
But what is supplier collaboration, and how can it help your business excel moving forward? In this article, we’ll take a close look at how supplier collaboration works, the obstacles companies face in implementing collaborative programs, and how technology can help bridge the gap.
What is Supplier Collaboration?
Supplier collaboration refers to the practice of using technology to better connect with your supplier community, no matter their size or technological maturity. Automation streamlines the exchange of critical documents like invoices, POs, Advance Shipment Notifications (ASNs), etc. between suppliers’ business systems and your business system. This, in turn, can expedite shipping, procurement and other processes.
Most supplier collaboration efforts focus on cost savings and dependable delivery for the buyer. But the best supplier collaboration programs invite suppliers to join retailers and buyers in achieving mutual business objectives, such as joint value creation. The difference is, instead of requiring all their suppliers to achieve a certain level of technological abilities, or use a single portal for trading, these buyers give their suppliers a range of communication options that can fit suppliers at all levels. These electronic communication methods, in turn, can make both organisations more competitive by improving the speed and accuracy of transactions end-to end.
Two fundamental components of supplier collaboration can also help businesses overcome supply chain disruptions and market changes, like those we’ve seen in recent months. Increasing supply chain visibility and eliminating unknowns can enhance your operational resilience and make your supply chain more stable. The more you know about your orders, the quicker you can adjust to disruptions like supplier plant slowdowns or raw materials shortages.
Diversifying your supplier base protects against the risk of disruption or shortages by improving sourcing flexibility and reducing dependence on sole suppliers. Yes, managing more suppliers can complicate your supply chain processes. But if you’re able to leverage technology to collaborate efficiently with any given supplier, a more diverse supplier base mitigates risk with minimal downside.
Challenges in Supplier Collaboration
The ability to collaborate seamlessly with suppliers has long been recognised as key to omni-channel retailing because it helps accelerate product delivery and optimise the customer experience. Not to mention eliminating manual tasks, reducing administrative and overall supply chain costs, streamlining the procure-to-pay cycle, extending the value of IT investments, and more.
Conversely, a lack of visibility into supplier activities means the inventory and shipping data you share with consumers often isn’t accurate. Drop-ship programs falter, warehouses have stock outs and because of it, the brand image suffers.
Yet despite all we know about its benefits and importance, progress toward supplier collaboration has been slow for one simple reason: getting it right is hard. Whether through a third-party software provider or in-house solutions, the supply chain connectivity needed for collaboration often requires a lot of time, money, management effort and IT complexity.
The big challenge is that the average buyer’s supplier base varies widely in its business process maturity and technical sophistication. Your highest-volume suppliers may want to exchange documents using EDI or XML. At the other extreme, you may have suppliers who are still using email, PDF and even faxed paper documents, and aren’t ready to transition to more automated, electronic options. Trying to balance both can create a burdensome array of labour-intensive processes for buyers around entering data, chasing approvals, addressing errors/omissions and answering phone calls/emails.