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It’s no secret that supply chain complexity has increased. Thanks to an explosion of product customization and innovation, an insane volume of data passes through the supply chain every day.
Not to mention we live in a “next-day delivery” world, putting pressure on companies to be fast and lean within their supply chains. But when speed-to-market is paramount, there’s no time to make mistakes - everyone must be on the same page.
But how?
The key to a lean, mean, supply chain machine is supplier communication. The caveat is that we’ve outgrown the solutions on the market designed to facilitate supplier relationships. No longer do we look at our suppliers as simply an entity to manage, but one to collaborate with - leaving companies scrambling to find a better way.
But why does this matter? And what’s the difference between supplier management and supplier collaboration? Let’s take a look.
Supplier Management vs. Supplier Collaboration
Before the e-commerce era (when supply chains were a bit more linear), supply chain relations were more predictable. Think regular orders, fewer products, and fewer large-scale supply chain disruptions. As complexity increased, businesses began to add more suppliers into the mix, creating a need for supply chain management. But now, the world demands more of the modern supply chain - leading the industry to a more collaborative approach. Here’s the difference.
What is Supplier Management?
Supplier management typically has more of a vertical, or “top-down,” business structure. This means the hiring company makes decisions that are then passed on to the supplier to carry out while the hiring company provides oversight. The company provides the ‘what,’ and the suppliers provide the ‘how’ behind product sourcing or manufacturing. Supplier management also provides the principles upon which we see SRM (Supplier Relationship Management) software built. SRMs are process-focused; key features include:
- Invoices
- Order Histories
- Scheduling
- Contract management
- Catalog management
While these features are critical for administrative oversight, they are more transactional in nature. Given the complexity of today’s supply chains, most companies need a solution that can drive a more strategic relationship.
Benefits Of Supplier Management
Undoubtedly, organizations with effective supplier management processes and systems in place are more likely to experience a range of benefits. These include:
Reduced Risk
Supplier chain management provides better risk assessments, which can help quickly identify potential disruptions. It can also streamline company operations with centralized, digitized data that can be analyzed from anywhere. This means businesses can curb threats speedily and significantly reduce the risk for effective management.
Minimized Price Volatility
Fluctuations in market prices can significantly impact consumer behavior and patterns. Since fluctuations are mainly caused due to increased volatility of commodity prices, this can be effectively addressed through supplier relationship management.
Companies can take advantage of fixed prices or scaled increases in exchange for other qualifying criteria. With an unambiguous cost base, businesses can also set their pricing structure and improve customer satisfaction.
Reduced Costs
Supplier management can effectively curb additional costs incurred when partnering with new suppliers. Companies can enjoy cost reductions by identifying key partners and investing in mutually beneficial relationships and collaborative efforts. This can also help avoid issues related to quality management, availability, and supply and save significant finances over long periods.
Increased Efficiency
It is common for communication between suppliers and companies to improve with time as their relationship garners more trust. This means suppliers can get a deeper and more holistic understanding of the businesses and their needs.
So not only can this help suppliers meet requirements more effectively, but it can also reduce delays and other supply chain risks. With an improved flow of operations, incident resolution becomes far more effective for clients and suppliers in the face of ordering process issues.
Businesses must embrace digitized data for enhanced supply chain forecasting and smarter inventory management. By utilizing digitized data, businesses can tap into a wealth of information, swiftly analyze it, and make precise forecasts about future demands and supply chain fluctuations, significantly increasing overall efficiency.
Consolidation of the Supply Chain
A successful supply chain collaboration between clients and suppliers gives way to consolidated operations. As both parties understand each other’s needs, operations, and inner workings, it gets easier to complement needs. It is likely for both parties to update their existing processes to suit business objectives. This usually results in increased efficiency and operational advantages.
By outsourcing non-essential tasks to the supplier, the company can pay closer attention to other business processes. This could range anywhere from inventory management to better customer service. Consolidation of the supply chain can also streamline the purchasing process and make budgeting simpler.
What is Supplier Collaboration?
Supplier collaboration has more of a horizontal business structure. Rather than being just the method behind the madness, suppliers function as an extension of the business.But what does that mean?
It means that the decision-making hierarchy is flatter, the relationship is more of a win-win (not just in financial terms), and each party leverages the other’s talents.
Supplier collaboration results in deeper relationships between supplier and company; gone are the days of suppliers just functioning as a means to an end. Suppliers and companies live in an ecosystem, in which they both must collaborate to increase profitability, speed-to-market, and lower costs.
Benefits Of Supply Chain Collaboration
There are several ways supply chain collaboration can benefit businesses. Effective supplier collaboration and the ability to manage partnerships allow companies to hold themselves accountable. Not only can this help companies enhance positive relationships, but it also takes advantage of a range of benefits. These include improvement in business performance, customer satisfaction, and better revenue returns. The main benefits of supplier chain collaboration include the following:
1. Supply Chain Talent and Partner Retention
In the age of customer loyalty and retention, it has become common practice for companies to place special attention on their customer-specific initiatives. However, as crucial as customers may be, it is equally important to attract and retain top talent for a business’s success.
Digital platforms for effectively managing supply chain operations can equip company managers to hone professional skills and build their careers. And, as a company it enables more than one person to have access to this data, so you’re not relying solely on tribal knowledge. Advanced and interactive tools ensure employees can conveniently communicate daily QC matters and market regulations with supply chain partners.
With the opportunity to improve profiles and enjoy job satisfaction, supply chain collaboration can help businesses attract top-tier talent.
2. Lower Your Long-Term Costs
Long-term collaborations can have a significant impact on the bottom line. Compared to one-off partnerships, these provide practical and straightforward benefits for meeting daily operational needs. Not only does it streamline communication, but it can also help reduce costs and save considerable time.
Supply chain collaboration can, in this regard, help improve real-time communication and transparency with long-term suppliers. Employees can automate routine tasks based on availability and schedule by using quality control and compliance software. They can also keep up with their supplier’s pace and close production cycles quickly.
3. Improve Product Quality and Safety
When it comes to customer satisfaction, delivering high-quality products and services is the prime contributing factor. You need adequate feedback and insight to address customer pinpoints and improve product quality. Supply chain collaboration allows businesses to get deeper insights into the challenges influencing their product quality.
This could range from issues pertaining to raw materials, compliance with new regulations, or problems with employee safety. Coupled with effective digital platforms, collaborators can use actionable insights to track quality and safety issues and improve supply chain performance.
4. Drive Better Ethical Standards Through Multi-Stakeholder Collaboration
With growing environmental issues, sustainable business operations have become a priority for consumers and businesses. Companies can contribute to driving better ethical standards through multi-stakeholder collaboration.
Partnering with multiple agents can improve supply chain transparency, promote environmental ethics and drive positive change. Information sharing and collaboration on supply chain planning can facilitate forecast consensus and improve accuracy.
Using a Spec-First Approach to Drive Supplier Collaboration
So, how can you start to move from a transactional, metrics-based approach (supplier management) to a more strategic, collaborative relationship with your supply base, especially as the number of suppliers you manage grows?
The answer requires us to look at the biggest pain point between suppliers and brands: data management and sharing. The reason for a “top-down” mentality is often due to challenges that result from poor specification management.
Specifications define how something is made or how it should operate. In essence, the specification is the agreed-upon contract of what a brand or customer is expecting and what a supplier will produce or supply (hence the term “to spec”). Today, procurement teams, product development teams, quality teams, and packaging teams are often managing specs in data silos like spreadsheets, shared drives, and legacy systems. Then, when products and packaging are ready to be produced, specs are often shared via email, as a result, are immediately outdated. This presents high risk across the supplier base because incorrect items may be produced as specs change.
And the reason for spec changes abound: changing regulations, consumer demand for transparency, and supply chain challenges can all result in specs changing throughout a product’s life. That’s why many companies are turning to Specification Management software to better manage supplier relationship management.
A spec-first approach makes it easy to get the core data right – the spec – and easily layers on additional information like pricing, supplier data, documents, and purchase orders. Taking a data-driven approach also enables the rapid development of supplier scorecards, more advanced SRM strategy, and procurement process optimization by breaking down data silos across an organization.
Why It Matters: Supplier Performance
2020 is the perfect example of why supplier collaboration matters.
Nearly overnight, key industries experienced major shortages, companies overworked or, in some cases, lost their suppliers, and supply chain professionals were scrambling to pick up the pieces. Others were struggling to create contingency plans and fell short because they relied too heavily on suppliers to manage critical parts of their supply chain.
In today’s world, the supply chain must be flexible, resilient, and quickly scalable. COVID-19 taught us that, currently, very few supply chains are able to respond to disruptions in real-time. There needs to be enough visibility into supply chain operations so that companies can immediately respond to changing consumer demands and preferences. Visibility reduces errors, helps companies identify cost savings, find new suppliers when needed, and optimizes procurement.
Supply chain collaboration is a strategic competitive advantage. It’s critical to remove the black box surrounding supplier activity. Our systems should provide a deeper look into key suppliers beyond invoicing, pricing, and service-level agreements. And at the end of the day, supplier collaboration results in mutually beneficial relationships. The more visibility you have into your suppliers’ activity, the better they can serve your business (not to mention the better impact on your bottom line).
Get Started with Specright’s Specification Management Platform
At Specright, we created the first purpose-built platform for Specification Management, enabling brands and suppliers to share and collaborate on critical data like raw materials, formulas, ingredients packaging and products in real-time.
Specright’s Specification Management gives buyers and vendors alike an abundance of opportunities to create a win-win situation. By centralizing data in a single source of truth and then layering on workflows, vendors can earn buyers’ trust by increasing visibility into sustainability, product sourcing, and logistics. Likewise, buyers can use their data to continue meeting consumer needs, predicting spikes in demand, and simplifying every product’s journey to market.
Download our ebook today to learn more about how Specright is creating stronger supplier relationships and driving collaboration.
