People are creatures of habit. We drive the same route to work on most days. We get our morning coffee at the same shop. And we take these habits to the workplace, doing things the same way as always because we know it works. But it’s time to challenge the ways of the past.
In the world of sourcing and procurement, there are new ways of creating sustainable savings. But first we must challenge the existing ways in which we conduct business—even if that means re-thinking our supplier discovery and collaboration practices. Here are a few ways establishing a process for continually evaluating suppliers helps reduce complexity in the procurement environment.
Change: Could be risky if you don’t
You may be asking why finding new suppliers is so important. Your business is fine. Your suppliers are meeting your needs. So why make the effort to find new ones?
First, there’s risk. Imagine that the shop you get your morning coffee from everyday suddenly had a sign on the door that read “Going out of business effective tomorrow.” Do you have another place to get your coffee? Will it be as good? How long is the wait? All of these questions and more begin to affect your day-to-day life. And that’s just a cup of coffee. Managing supplier-related risks in a business environment is a much more complicated affair. These risks can include contract non-compliance, reduced quality of products or services, global economic changes, and overall poor supplier performance.
Second, there’s finances. Say your favourite coffee shop has increased the cost of a cup of coffee by 50%. Would you pay the price? Maybe, maybe not—but you likely have the choice of going to another supplier. Why wouldn’t you want that choice with your business suppliers? Being able to find suppliers that can meet your financial objectives of sustainable cost savings can have a substantial impact on the bottom line.
Finally, there’s competitiveness. It’s important to continually evaluate the market to work with best-in-class suppliers. There are times when your “best suppliers” can lose market share due to a lack of product innovation and development. This may lower their status in the marketplace. “We already have many suppliers in our database,” explains Celia Parsons, category manager, indirect and professional services, at Caesars. “But if you have been using the same suppliers for years and don’t want to go elsewhere, you may not be using the right or the best suppliers.” You don’t want to miss the opportunity to work with innovative suppliers that are bringing new ideas and strategic direction to the industry, and driving your own business forward.
Tools for simplifying change
Change is never easy so we try to simplify it. The same applies to finding new suppliers. In today’s economy and fluctuating market environments, companies must have a larger pool of high quality suppliers to choose from to help manage their objectives around risk, price and market competition. Procurement teams demand suppliers to be strategic partners to reach their goals. All of this adds complexity to the process: it’s not enough to just find a new supplier, but you need to be able to collaborate in a timely and efficient manner. Companies are looking for ways to automate the collaboration with their suppliers more than ever before. The collaboration requires technology and the right tools to be successful.
Let’s go back to the coffee shop example. When you read the sign on the door that the shop was closing, what did you do? Most people today would take out their mobile device and look for the closest coffee shop on their route to get that cup of coffee. They can search by store name or just key words such as “coffee”. The results show immediately and you can plan a route to the destination. Technology drives more business processes and connects more people than ever before. And it’s only going to get bigger. So get the tools to make it easier in your search for suppliers.
There are two main tools that can drive supplier discovery. First, you need an eSourcing tool. Electronic sourcing tools provide a document management process to handle RFIs, RFPs, RFQs, etc, making it easy for you to find and engage potential suppliers. As suppliers respond with their information, you can compare current suppliers with the new supplier information to compare your options based on terms, price, product, or other attributes. You can move from the award decision process to the contracting and buying process quickly and easily because you have all the information in one place.
The second tool you must have is a network – a marketplace of suppliers that you can reach out to. Sourcing teams can utilise business networks (sometimes called supplier networks) to connect online to their suppliers. You can also discover new suppliers more efficiently and conduct business directly with the business partner. A manager looking to hire a new sourcing team member isn’t going to look in the phonebook. They are going to use a tool such as LinkedIn to find candidates that have worked in sourcing and possibly even in certain industries. The hiring criteria can be used to narrow a list of potential candidates to recruit. Looking for a supplier requires the same type of discovery ability. You can search the network based on criteria such as category, location, cost or ratings. Then you can reach out to suppliers that fit the criteria. Companies are seeing the advantages of business networks. They see the results of being connected in a global economy.
The results of change
Albert Einstein is quoted as follows: “Insanity: doing the same thing over and over again and expecting different results.” Doing the same thing in your supplier management process because you have always done it that way can leave your business behind. Finding new ways to do business and finding new suppliers to fit your business requirements are essential in today’s hyper-competitive economy. Andrew Bartolini from Ardent Partners wrote, “Consider that while globalisation, innovation, and competition have helped streamline and improve business performance, they’ve also helped increase business volatility and the complexity of supply management. One very real implication of these trends for sourcing and category teams is that supply markets shift: the most qualified suppliers one year may be laggards in the market just a few years later. I would argue that maintaining the status quo may, in fact, be the riskiest thing you can do. Your smart rivals aren’t standing still.”
You must manage risk, costs and eliminate complacency to deliver results. And you need to simplify the supplier discovery process so that complexity is not a barrier to change. Maybe it’s time to ask, “What if my coffee shop closed or changed it price? What would I do?”
Michael Koch is director, procurement and business network solutions marketing at SAP Ariba.
This article is a contribution from a subject matter expert at SAP Ariba. Commissioned by Procurement Leaders. It is part of a sponsored editorial product, published in partnership with SAP Ariba.