Supplier Visibility Translates to Higher Performance
New Aberdeen study confirms that companies with the best supplier visibility and performance measurement programs outperform the rest of the pack.
By Sudy Bharadwaj -- Supply Chain Management Review, 10/1/2006
Efforts to cut costs have put a strain on supply chains today. Techniques such as low-cost country sourcing and the outsourcing of manufacturing and other services have extended the global supply chain—and in the process have opened up the enterprise to new risks and challenges. Principal among these is the increased potential for supply chain disruption and variability.
Companies have adopted various practices to manage this situation. In particular, they have instituted initiatives centering on supplier performance, supplier visibility, supplier costing, and supplier collaboration. Collectively, these can be characterized as “global supply visibility and performance” (GSVP) programs. This article, based on a survey of 110 global companies, examines the drivers, hurdles, strategies, and tactical action plans for establishing GSVP programs and related best practices.
The companies in our survey reported an average of 10 supply chain disruptions over the last five years. These disruptions were largely due to supplier or in-transit issues that had a material impact on shareholder value. Examples included quality problems, component shortages, late deliveries, weather, security, port strikes, and supplier closings.
We divided up the survey respondents into two categories: (1) industry average and laggard performers and (2) best-in-class performers. (Exhibit 1 summarizes the characteristics of the two groups.) The best-in-class were defined as those respondents whose performance in the key metric of delivery date vs. customer request date was 81 percent or higher. Put another way, these companies have the ability to provide products to customers when the customer wants them.
What Sets Apart the Best?
Analysis of the survey results revealed a number of key differences between the best-in-class companies and the others:
Best-in-class companies had GSVP programs in place longer than the others. (For example, 72 percent of the leaders had programs in place for five years or longer, compared to only 58 percent of the rest of the sample.)
- Best-in-class enterprises are meeting customer commitments while reducing inventory at much stronger levels than the average and laggard performers.
- Best-in-class prioritize how much information to share and with whom. The top three information areas shared with suppliers involve inventory levels, demand forecasts, and sales/consumption activity. Where information sharing is concerned, there is no middle ground. The best-in-class companies either focus on the top 10 percent of their suppliers or on 100 percent of their suppliers. Industry average and laggard performers typically share information with only about half of their suppliers. Notably, best-in-class companies share information more frequently as well.
- Best-in-class enterprises are paranoid about the possibility of supply chain disruptions—and they have the results to show for that paranoia. Fully 44 percent of the best-in-class cite “fear of supply chain disruptions” as a top pressure forcing them to initiate or implement a GSVP program. It's interesting, however, that only 4 percent of these top performers actually experience frequent supply chain disruptions.
The bottom line: All of these differences translate to superior business performance and competitive advantage by the best-in-class companies.
Getting Beyond AverageHow can companies that are average or lagging accelerate their progress toward best-in-class status? The first step is to identify the business priorities that they hope to address through the GSVP initiatives. Based on our extensive research in this area, Aberdeen suggests the following priorities:
1. Supplier performance measurement. Supplier performance should be measured quarterly or more often. 2. Supplier costing. Costing analysis should be done quarterly or more often for commodity supplies (resins, metals, energy, and so forth); it should be done semi-annually or annually for other items.3. Supplier collaboration. Information must be transmitted to suppliers on an “as-needed basis,” utilizing e-mail triggers to notify them about any potential problems.
4. Supplier visibility. To derive real value from the supplier relationship, you need appropriate visibility into supplier events.
In acting on these priorities, companies need to migrate away from spreadsheets and leverage technology either from their incumbent enterprise resource planning (ERP) provider or from other solution providers. Access to information must be quick, efficient, and available to members of your organization who can act on it. A supplier portal and supplier enablement capabilities are critical here. These are the enabling technologies that can make the priority areas a reality.
For a specific item, department, or product line, focus on the top 10 percent of your suppliers based on their strategic nature. Once this program is up and running and value is being generated, then quickly bring all your suppliers into this program. A quick, high-impact, low-risk tactic is to create and execute a supplier-enablement process. This can quickly provide benefits, since the effort to enable suppliers in an electronic collaboration process can be leveraged for other GSVP initiatives.
Any GSVP process must be repeatable year-over-year and should proceed along three dimensions: breadth, depth, and time.
Breadth. Progressively incorporate more suppliers into the GSVP program. Best-in-class companies seek to fully integrate as many key suppliers as they can into the program. The average best-in-class company has 46 percent of its suppliers in a GSVP program, achieving key performance indicators (KPIs) that on average are 80 percent higher than industry average and laggard performers. Depth. Generate more information flow to/from suppliers. The best performers strive to increase the amount of information that they share with their suppliers. Based on the survey and follow-on interviews with the leaders, Aberdeen suggests sharing the following information with suppliers: shipment schedule, cost information, raw material/component availability, demand forecasts, manufacturing schedules and capacity plans, sales/consumption activity, manufacturing plans/release schedules, and inventory levels.
In addition to sharing information with suppliers, ask suppliers to share information with your enterprise. Information from suppliers that can benefit your company include inventory levels, capacity plans, manufacturing schedules, raw material/component availability, and cost information.
Time. Increase the speed at which information is shared. According to our study, some information is being shared monthly. Is there value in providing information more quickly? Is it more beneficial to know about events that affect your supplier and customer chain in real time? The answer can be an obvious yes. Make sure the processes and technology is in place to provide the information at the frequency and speed needed. The pressures to more effectively manage global supply chains aren't likely to let up anytime soon. But companies can take positive action to manage those pressures by implementing global supplier visibility and performance programs. The best-in-class organizations identified in our study prove convincingly that GSVP can yield a huge competitive edge.
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