Supplier Synergy: Harnessing AI for Optimal Partnerships

Supply Chain

Supplier Synergy: Harnessing AI for Optimal Partnerships

Artificial intelligence, blockchain, and data analytics can be leveraged to build optimized supplier relationships. Streamlining the process produces many benefits, including reduced costs and increased supplier diversity.- BY CECIL PERANG

Supplier relationship management is focused on optimizing supplier relationships while managing costs in procurement processes. As procurement processes undergo a digital transformation and increasingly embrace advanced technologies, the technology tools can build and support strong supplier relationships. The potential benefits include reduced costs, better inventory forecasting, increased diversity in the supply chain, and enhanced supplier collaboration that produces innovation. Procurement can achieve more strategic supplier relationships through access to actionable insights, and suppliers can access more corporate contracts when advanced technologies are leveraged.

Mutual Value Exchange

Developing good supplier relationships has never been more important because of the dynamic nature of supply chains and business in general. Yet developing authentic supplier relationships can be challenging, as it requres the ability to exchange insights, synchronize communications, and mutually support strategic goals. AI-based systems and other technologies have the potential to help organizations overcome these challenges and produce additional benefits, including reduced costs.

Data and data analytics are indeed the heart of any technology system, and when the data analytics provides the right insights, value is created. In supplier relationships, value is created through informed and dynamic decision-making. AI can improve supplier relationships first by identifying and then selecting the suppliers that can bring value to the organization. Automating the selection process based on unbiased criteria can lead to discovering suppliers that may be overlooked otherwise, increasing opportunities for innovative, diverse suppliers who have been unable to break through barriers in traditional supplier selection processes.

Suppliers selected based on their ability to become strategic partners begin the supplier relationship on a more productive basis from the beginning. Predictive AI can analyze past supplier behaviors and predict future behaviors, like meeting delivery and product quality requirements. Once suppliers are onboard, data analytics tools analyze supplier performance metrics, such as delivery timelines, quality standards, and compliance with contractual obligations. By evaluating supplier performance, organizations can identify areas for improvement, negotiate better terms with suppliers, and optimize supplier relationships to reduce costs and mitigate risks.

Transparent Communication Becomes Foundation for Collaboration
AI supports quality, productive, and transparent communication with suppliers in several ways. AI-enabled chatbots and virtual assistants can facilitate real-time communication and collaboration, eliminating the frustration of waiting for answers to routine questions. AI also supports supplier relationships through enhanced data-driven communication. For example, AI-powered tools can track compliance with contractual obligations, giving procurement actionable insights into supplier performance. The procurement team can provide constructive feedback to suppliers and collaboratively address issues to improve supplier performance.

Another communication area supported by AI-enabled data analytics is supplier negotiation optimization. AI algorithms can analyze negotiation strategies and outcomes to identify patterns, driving improved collaboration that can lead to better terms for the supplier and buying organization. Data analytics provides insights into market trends, pricing dynamics, and supplier landscapes. By analyzing market data, organizations can identify cost-saving opportunities, negotiate better prices with suppliers, and diversify their supplier base to reduce reliance on single sources, mitigating supply chain risks.

AI, machine learning, blockchain, and data analytics also support supplier relationships through streamlined payment processing, demand forecasting, and improved inventory management. Cash flow is a significant concern for many suppliers, especially SMEs. Many innovative SMEs cannot partner with slow-paying organizations. Yet, SMEs are a significant source of diverse, agile, and innovative suppliers. AI, blockchain, and automation can increase payment efficiency. For example, AI embedded in smart contracts executed on blockchains can automatically execute payments and product purchases based on preset thresholds or events and resolve disputes.

Building Better Supplier Relationships on Advanced Inventory Management
By leveraging predictive analytics, organizations can anticipate changes in demand, proactively manage inventory levels, and optimize procurement strategies to minimize costs and maximize efficiency. AI-driven advanced inventory management brings value to the organization and suppliers. Improved inventory management ensures organizations maintain optimal stock levels without experiencing stockouts or backorders. Suppliers benefit from more predictable demand and stable order volumes, leading to smoother production planning and scheduling. By accurately tracking inventory levels and product availability, order processing is more accurate and timelier and fulfillment errors are significantly reduced, leading to fewer discrepancies and supplier disputes. Suppliers appreciate accurate and reliable order information, which enhances trust and confidence in the business relationship.

Better inventory management also helps organizations optimize order frequency and size based on actual demand patterns and inventory turnover rates. By consolidating orders and reducing order frequency, organizations can achieve economies of scale and negotiate better terms with suppliers, such as volume discounts or reduced shipping costs. Suppliers benefit from consistent order volumes and reduced administrative overhead associated with processing smaller, more frequent orders.

Both Sides Now: Enhancing Supplier Relations From Two Directions
Walmart relied on AI and machine learning-driven inventory management systems during the 2023 holidays to ensure suppliers delivered what customers needed, when they needed it, and at the lowest cost. The company leveraged historical data and predictive analytics coupled with an automated facility, Next-Gen fulfillment centers, in-store technologies, and automated logistics, including a last-mile delivery network. The Walmart system is an example of a highly sophisticated data management system that considers future data like macroweather and macroeconomic patterns. This system is so advanced that it can “forget” one-time event anomalies so supplier models are not skewed. The state-of-the-art machine learning system can adjust inventory as needed, even repositioning inventory from one region to another based on sales.

On the supplier side, Rod Robinson, Senior Vice President at Insight Sourcing Group and the Founder & CEO at ConnXus, a cloud-based supplier relationship management platform acquired by Coupa, offered SMEs tips on using AI and other technologies in their processes. He advises that small and midsize business owners who want to prepare for and capitalize on AI should take a hard look at their own business to determine how such technology could be used to make their company better and, ultimately, make them a more valuable supplier partner. Building on this, in a recent survey of small and midsized businesses by American Express, 43% of respondents believe that AI will benefit them in securing contracts with $1 billion plus companies in the next 5 years, making AI something suppliers must leverage to win corporate contracts.

Thus, while it does represent a need for change from the status quo, using advanced technologies for enhanced supplier relationships is a two-way, value-driven opportunity. Plus, as both sides of the arrangement lean more and more on technology, new uses and opportunities in the relationship are sure to be discovered.