Procurement is expected to unlock supplier innovation while continuing to minimize risks and manage costs. Strengthening collaboration through the use of technologies is the path to getting desired outcomes in supply chains.
By Donna Benjamin
A decade ago, the procurement function began undergoing a transformation when it was asked to assume a variety of new responsibilities, including minimizing supply chain disruptions, maintaining quality while expanding globally, reducing environmental impacts through sourcing and procurement decisions and, most recently, unlocking supply chain innovation.
Experiencing any or all of these outcomes requires a strong system of supplier collaboration which can be efficiently accomplished via technologies combined with integration strategies designed to take advantage of the technologies to reach the desired level of supply chain excellence.
Technology Transforms Supplier Collaboration
In May 2017, Toyota announced it was opening the Toyota Technical Center campus which refers to one building as the "Supplier Center," a physical building with top-tier technology made available to suppliers doing design work. The purpose of the Supplier Center is to cultivate strong collaborative relationships with suppliers. The suppliers have free reign of the first floor of the three-story building, plus there are collaboration areas where engineers, suppliers and purchasing professionals can work together.
Another building on the campus is the Toyota Collaborative Benchmarking Center which is engineer-focused. An outsourced technology supplier maintains a library of physical parts, and a website where high-resolution images of parts are always available. Technology enables engineers, suppliers, sourcing and procurement to innovate together.
Most companies probably cannot afford a campus like this, but it is used as an example of advanced supplier collaboration because the collaboration principles at its foundation apply to all businesses.
One of the most important reasons for establishing the campus is to get suppliers involved at the design concept stage to maximize value improvement, increase efficiency, improve quality and increase speed-to-market, and all while reducing costs. The inclusion of purchasing operations in the Toyota Technical Center reflects the importance of collaboration between procurers and everyone else involved in product design, manufacturing, quality assurance and so on.
Suppliers often hold the keys to innovation because they offer new perspectives from a business viewpoint and have access to and understanding of customer and supply markets not currently accessed by the supplier's customer. However, it is still easy to lose sight of the fact that successful purchasing strategies are central to bringing innovation to market while managing costs.
Unlocking the Future
Developing productive supplier relationships is not always easy. Sourcing and procurement remains locked in the past for many companies as they continue to focus on transactions and costs.
Supplier collaboration requires a new operating model which includes value and innovation performance indicators, as well as the traditional cost and risk indicators. Digital technologies make it possible to strengthen supplier relationships at every stage of inclusion from innovative product development, like the Toyota approach, to maintaining efficient inventory management, product movement and minimal risks.
Capgemini Consulting suggested digital tools can power up buyer-suppler collaboration in four trending areas, the first of which is a trend toward including suppliers in new product development, creating breakthrough technologies, and improving current products. Leveraging supplier experience for innovation means tapping into supplier knowledge to minimize errors and costs and to drive quality and idea generation. Digital technologies supporting this kind of collaboration, like SAP's Integrated Product Development software tool, provide the means for sharing information; managing the development process; and integrating communications between procurement, suppliers and business units involved in the process.
The second trend is a movement to a value generating focus for sourcing and procurement. Advanced sourcing analytics include spend analysis, supply risk assessment, and sourcing optimization. Digital technologies in this area support supplier-customer information sharing for supply chain mapping for visualization of the end-to-end supply chain processes in real-time. Collaboration reaches a new level in this area because it enables organizations to anticipate and respond to supply chain risks.
The last two trends described by Capgemini are using open innovation and crowdsourcing to accelerate innovation, and using social listening or data mining as a means for monitoring and responding to upstream supply chain developments. Collaborating with upstream suppliers is a trend likely to grow rapidly as organizations move toward a circular economy.
Sophisticated technologies are already available that are designed to strengthen Supplier Relationship Management and supply chain collaboration.
For example, Dell's i2 suite of tools offer digital solutions to streamline the collaborative process while maximizing value. The i2 TradeMatrix application has several components, and two of them are supplier relationship management (SRM) and supply chain management (SCM). SRM benefits include enhancement of design and manufacturing collaboration during the design and sourcing phases and supplier collaboration during the negotiation and buy phases. SCM improves inventory management, logistics, and differentiated responses to customers.
In comparison, Toyota has suppliers collaborating even before the product design phase.
Gaining visibility into supplier businesses has become a fundamental competitive requirement for controlling costs. As supply chains become more complex and global, and are subject to more risks of disruption, it becomes more challenging to get that visibility unless there is a strong collaborative relationship with suppliers.
Small businesses do not have to spend a fortune on collaboration centers and expensive software. The important point is to establish strong collaborative alliances with critical suppliers before, during and after a product makes it to market. Collaboration means suppliers are given a voice in the relationship.
Digital technologies are used for the exchange of ideas and product management. They enable the voices of suppliers and their customers. The technologies are also used to provide a platform for problem anticipation and resolution, to produce analytics for decision-making, and for the inclusion of internal business customers in the collaboration process.