Assuring Supply to Assure Profitability, Quality and Customer Satisfaction
Supply chain disruptions typically can reduce share prices by an average of 7 percent, according to a recent Accenture study. But where does that risk of disruption typically come from? While major disasters and collapses come to mind first, this is not the usual cause. Most supply disruptions stem from everyday problems: late deliveries, suppliers unable to meet production and quality targets, raw material shortages, lack of capital for purchase of materials, or production quality problems. Just as consumer goods providers understand the processes within their own plants, they have to understand all the processes that their outsourced manufacturers and suppliers go through. Risk is introduced at each step, and each process must be understood to reduce volatility. Manufacturers have to collaborate with suppliers throughout each process step in order to have a predictable outcome of supply.
Transparency and supplier collaboration are fundamental elements to assuring supply. Historically, companies have dabbled on the periphery of collaboration. Some have planning collaboration or order management solutions.
Occasionally, a CPG provider has limited production visibility at the supplier or outsourced manufacturer’s site. But most companies fail to look at the full picture to assure supply goes undisrupted. Instead, multiple departments deal with different aspects of the supplier. Procurement negotiates the price, manufacturing material handlers place the order, logistics determines how to ship, supply chain tracks the shipment and finance determines when to pay.
This fragmented approach to supplier management leads to haphazard reliability of supply. The status of each process is tracked separately and there is no way to look at the big picture, contextually. A holistic alignment with suppliers is needed across the corporation to ensure a seamless flow of high-quality goods to the right place at the right time.
Hidden Risk to Supply: Access to Capital in Sourcing Regions
Several in-direct risks loom that aren’t always on the manufacturer’s radar. For example, capital costs. The US Federal Reserve today stands at a .25 percent interest rate and the Bank of England is at .50 percent. But look beyond that into developing regions: China has a much higher interest rate at 6 percent, India at 8 percent, Turkey at 10 percent, and Brazil at 10.75 percent. Move further into the frontier markets, such as sub-Saharan Africa or Argentina, and they’re even higher. Why is this a dangerous factor that must be considered upon mitigating risk and assuring supply? There are multiple capital-related risks that lead to delays and quality issues. Lack of capital among suppliers in emerging regions is one of the biggest causes of shipment delays. Depending on the industry segment, raw materials and goods being produced, high capital costs can become a vice grip on the flow of supply. Suppliers who struggle to obtain capital to start an order are a major risk. Consider this: suppliers have to finance materials, equipment, plant, payrolls, and account receivables.
Unfortunately, the supply chain partner with the highest cost of capital gets squeezed, especially if customers start extending payment terms.
Manufacturers who don’t tread carefully end up with higher cost of goods or suppliers that go out of business.
Here are 7 questions manufacturers can ask themselves to assess their assurance of supply risk:
Addressing the Challenge
Everyone has an assurance of supply problem to some extent today due to the complexity of global sourcing. For years manufacturers were blessed with high margins but that is changing and margins are thin today. You can’t fill up your distribution centers with goods – not only is there a cost factor but the speed of business and consumer buying trends cause goods to quickly turn obsolete.
Manufacturers have to be faster and more agile in the supply chain. Assurance of supply is essential to being able to compete. It also helps to be easier to do business with from the supplier’s perspective. The common thread in assurance of supply initiatives is partnering with suppliers by collaborating. Best-in-class companies seamlessly manage all aspects of a supplier relationship. The big opportunity is in using these relationships to the greatest advantage for everyone in the value network.
The Solution: Connected Business Networks
When all supply chain parties are connected on one network the world becomes a smaller place – with capabilities and opportunities that cannot be obtained elsewhere. Visibility and control of transactions becomes easier. Transactions become more strategic, collaborative and transparent. Risk is removed for manufacturer and its trading partners. Goods and capital flow more easily and at less cost. And all parties involved benefit. The key is empowering suppliers with visibility into orders, data and payment – and opening the door to network collaboration.
This works when all parties are plugged into the same network and direct visibility is provided to each node in the network. For example, the finance provider knows the parties, transaction history, documents and key events in a transaction and can deliver capital to the network at lower cost. This is easier said than done. But B-to-B networks that deliver this level of connectivity and visibility already exist today in the cloud.
ABOUT THE AUTHOR
Diane Palmquist is Vice President of Manufacturing Industry Solutions at GT Nexus, combining industry expertise and technology to deliver the best possible solutions for customers. Diane’s career has been focused on the manufacturing sector, creating solutions for new problems and new markets. For the last 13 years, Diane has used SaaS and cloud technologies to find ways to converge ERP and supply chains in emerging markets. Prior to GT Nexus, Diane was General Manager for an SAP partner specializing in developing products for subsidiary manufacturers in emerging markets. Diane has an MBA from the University of Minnesota.
Transparency and supplier collaboration are fundamental elements to assuring supply. Historically, companies have dabbled on the periphery of collaboration. Some have planning collaboration or order management solutions.
Occasionally, a CPG provider has limited production visibility at the supplier or outsourced manufacturer’s site. But most companies fail to look at the full picture to assure supply goes undisrupted. Instead, multiple departments deal with different aspects of the supplier. Procurement negotiates the price, manufacturing material handlers place the order, logistics determines how to ship, supply chain tracks the shipment and finance determines when to pay.
This fragmented approach to supplier management leads to haphazard reliability of supply. The status of each process is tracked separately and there is no way to look at the big picture, contextually. A holistic alignment with suppliers is needed across the corporation to ensure a seamless flow of high-quality goods to the right place at the right time.
Hidden Risk to Supply: Access to Capital in Sourcing Regions
Several in-direct risks loom that aren’t always on the manufacturer’s radar. For example, capital costs. The US Federal Reserve today stands at a .25 percent interest rate and the Bank of England is at .50 percent. But look beyond that into developing regions: China has a much higher interest rate at 6 percent, India at 8 percent, Turkey at 10 percent, and Brazil at 10.75 percent. Move further into the frontier markets, such as sub-Saharan Africa or Argentina, and they’re even higher. Why is this a dangerous factor that must be considered upon mitigating risk and assuring supply? There are multiple capital-related risks that lead to delays and quality issues. Lack of capital among suppliers in emerging regions is one of the biggest causes of shipment delays. Depending on the industry segment, raw materials and goods being produced, high capital costs can become a vice grip on the flow of supply. Suppliers who struggle to obtain capital to start an order are a major risk. Consider this: suppliers have to finance materials, equipment, plant, payrolls, and account receivables.
Unfortunately, the supply chain partner with the highest cost of capital gets squeezed, especially if customers start extending payment terms.
Manufacturers who don’t tread carefully end up with higher cost of goods or suppliers that go out of business.
Here are 7 questions manufacturers can ask themselves to assess their assurance of supply risk:
- How early and often are you collaborating with suppliers? Are you sharing forecasts?
- How are you placing and managing your POs? Do you change quantities and deliveries after you have given your supplier a firm PO?
- Do you have true visibility into key events in the production lifecycle, into WIP?
- Do you have accurate information regarding vendor managed inventory, n-tier supplied component parts or even parts supplied as subcontract material?
- Do you have granular visibility into shipments to know exactly what is packed where and the exact date it will arrive? What about exact location as the shipment crosses borders or switches transportation modes?
- How are you handling invoices and settlements? Is handling supplier email and phone calls still part of the common workflow?
- Do your suppliers have access to capital? At what rates are they borrowing? Are they leveraging your credit strength to eliminate capital costs? Are you aware of your suppliers’ financial health?
Addressing the Challenge
Everyone has an assurance of supply problem to some extent today due to the complexity of global sourcing. For years manufacturers were blessed with high margins but that is changing and margins are thin today. You can’t fill up your distribution centers with goods – not only is there a cost factor but the speed of business and consumer buying trends cause goods to quickly turn obsolete.
Manufacturers have to be faster and more agile in the supply chain. Assurance of supply is essential to being able to compete. It also helps to be easier to do business with from the supplier’s perspective. The common thread in assurance of supply initiatives is partnering with suppliers by collaborating. Best-in-class companies seamlessly manage all aspects of a supplier relationship. The big opportunity is in using these relationships to the greatest advantage for everyone in the value network.
The Solution: Connected Business Networks
When all supply chain parties are connected on one network the world becomes a smaller place – with capabilities and opportunities that cannot be obtained elsewhere. Visibility and control of transactions becomes easier. Transactions become more strategic, collaborative and transparent. Risk is removed for manufacturer and its trading partners. Goods and capital flow more easily and at less cost. And all parties involved benefit. The key is empowering suppliers with visibility into orders, data and payment – and opening the door to network collaboration.
This works when all parties are plugged into the same network and direct visibility is provided to each node in the network. For example, the finance provider knows the parties, transaction history, documents and key events in a transaction and can deliver capital to the network at lower cost. This is easier said than done. But B-to-B networks that deliver this level of connectivity and visibility already exist today in the cloud.
ABOUT THE AUTHOR
Diane Palmquist is Vice President of Manufacturing Industry Solutions at GT Nexus, combining industry expertise and technology to deliver the best possible solutions for customers. Diane’s career has been focused on the manufacturing sector, creating solutions for new problems and new markets. For the last 13 years, Diane has used SaaS and cloud technologies to find ways to converge ERP and supply chains in emerging markets. Prior to GT Nexus, Diane was General Manager for an SAP partner specializing in developing products for subsidiary manufacturers in emerging markets. Diane has an MBA from the University of Minnesota.