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5 Steps for effective supply chain management


This whitepaper will focus on the 5 key steps to effective supply chain management and the role technology plays in achieving these imperatives. – PowerPoint PPT presentation

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Title: 5 Steps for effective supply chain management

Steps for EffectiveSupply ChainManagement
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

  • 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
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.
  • 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.
This whitepaper will focus on the 5 key steps to
effective supply chain management and the role
technology plays in achieving these imperatives.
  • 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

  • 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
  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

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
About Zycus
  • At Zycus we are 100 dedicated to positioning
    procurement at the heart of business performance.
  • more than a decade we have been the world's most
    trusted leader in Spend Analysis. With our spirit
  • 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
  • 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
  • for procurement practices proven to drive
    competitive business performance. We incorporate
  • 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.
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