Procurement Intelligence Unit

Supplier information management (SIM) – three little words that could make a big difference in procurement over the next decade. Even with 2010 in its infancy, we've seen one of the biggest global retailers, Walmart, announce plans to consolidate its global sourcing operation in order to gain greater visibility into a supply chain that spans the length and breadth of the business world. 

As a consequence - in addition to achieving savings of over US$12 billion – the retail leviathan hopes, and no doubt expects, to achieve greater transparency within its supply base, the holy grail for many companies in an era when sustainability and financial risk objectives are paramount.

But whereas Walmart has captured the headlines in the early weeks of 2010, other companies are struggling to follow their lead, despite the fundamental benefits that SIM can deliver. In an increasingly globalised world, few firms - with their hand placed firmly on their heart - can truly claim to know everything there is to know about their suppliers. And, in reality, it would be unreasonable to expect otherwise. However, such is the laissez-faire attitude of some procurement organisations that even some of the basic factors that make up a supplier's suitability as a viable business partner - namely risk, sustainability, diversity and compliance - are being overlooked.

The revelations and risks that dog every major retailer on a fairly regular basis provide ample evidence of the need for a supply chain that is both transparent and beyond reproach. In reality the complex web of suppliers and contractors beyond a firm's tier one and two suppliers dictate that this is easier said than done.

The financial meltdown witnessed on both sides of the Atlantic over the past two years has also merely served to illustrate the need for companies to be fully aware of the financial health, or otherwise, of their major suppliers - a fact graphically illustrated by suppliers in the US automotive industry, many of which found themselves facing an uphill struggle for survival as the fall-out from Wall Street struck like a tidal wave in Detroit.

On a far more basic level, Boeing's flagship 787 Dreamliner aircraft was dogged by a series of supply chain bottlenecks and parts shortages, which put the launch back for two years.

All of which suggests that SIM should be floating far higher on the agenda, not just in procurement but in boardrooms across the world.

A study by the Procurement Intelligence Unit, published in February, shows that a more proactive approach to SIM does more than simply give procurement organisations peace of mind. The report also demonstrates that the implementation of a thorough SIM process delivers a rapid return on investment (ROI).

GE, for example, saw ROI within a year, after introducing a SIM solution with its 500,000 suppliers. Similarly, O2 Ireland enjoyed ROI within two years. The cost savings on offer also provide a persuasive argument for SIM. Aravo, a leading SIM provider, boasts of having reduced the average cost per supplier for its clients from US$720 to less than US$200.

If those kind of savings don't make CPOs sit-up and take notice, then the process efficiency, supply risk mitigation and sustainability advantages surely must. The scope for greater collaboration, and subsequently innovation, between suppliers and procurement is also another welcome by-product of SIM, but it's the focus on sustainability that could soon make it a business imperative.

According a survey outlined in the PIU's report, almost 25% of respondents said that there had been an increased focus on sustainable sourcing and CSR as a result of the recession. An increasingly ethically conscious consumer, in addition to the likelihood of stiff penalties and taxes for firms that flout environmental legislation in the near future, means that that number is likely to rise as we move into the next decade.

As any senior procurement figure will tell you, a company is only as sustainable as the suppliers with which it works alongside. And as countless headlines in the past have proven, there are many skeletons in many cupboards.

Stripping suppliers down to the bare bones through a robust SIM strategy should, however, ensure that CPOs sleep far more soundly.