Managing supplier information dynamically using SAP solutions to reduce risk and increase value
By Sanjeev Kumar Pandey
After remaining as passive data records in archives for long, management of supplier information/data is slowly catching the attention of procurement executives and gathering prominence for its vital role in establishing successful supplier relationships. New acronyms like SIM (Supplier Information Management), SLM (Supplier lifecycle management), SBM (Supply base Management) are becoming latest buzzwords in procurement solutions. These terms are used interchangeably and would often refer to the same processes. I would be using supplier management as generic term to refer to all such processes.
Over the years, advent of internet, e-commerce portals coupled with compelling need to reduce costs has led to proliferation of supplier relationships in multiple tiers all across the world. Moreover the last recession that world economy went through brought to light harsh realities of bankruptcies, financial risks etc. Besides all of these, companies today also need to address sustainability, environment and green concerns in supply chain. Regulations like RoHS and WEEE have come up to enforce environmental compliances. All these drivers have fuelled the need of having robust supplier data management in place to manage supplier information on a dynamic basis.
Supplier data traditionally has been composed of mainly static data such as supplier contacts, accounts, delivery, payment terms etc. These data need only occasional updates. However in order to have comprehensive view of supplier status and health, supplier data needs to be maintained across multiple dimensions such as risk data, sustainability etc. These data are dynamic in nature and would need regular updates to ensure the right picture of supplier. However there could be challenges in supplier's willingness to share such data and validating the data. To some extent, data from third party rating agencies like D & B could be useful. However an organization needs to devise processes to maintain and update such data at regular intervals.
Broadly we can classify supplier management processes across 4 stages as below:
Supplier Registration: This is the first stage when a potential supplier makes contact with a company and initiates the process of submitting application for becoming part of supply base. This is discovery phase wherein supplier and the buyer try to find out mutual areas of interest. At this stage, comprehensive data should be captured from supplier based on the categories that the supplier intends to supply.
Supplier Qualification: This is the second stage in supplier management wherein a buying company evaluates the supplier application and makes a decision. Depending upon categories, there could be multiple stakeholders in evaluating and approving supplier. Detailed analysis should be done at this stage based on the captured data to evaluate risks, past performance and references. Potential suppliers could be sent further questions or involved in a bidding process for evaluation.
Supplier Onboarding: This is the stage when potential supplier successfully qualifies for becoming part of supply base and is set up in the buyer company for transacting. Evaluation data captured during qualification stage should be maintained in the supplier master record for future reference.
Supplier performance management: This is an advanced stage wherein supplier performance is monitored over a period of time and decision about future course of relationship is taken. Analytics support is required to measure supplier KPIs and performance parameters. It is important to have supplier performance management seamlessly integrated into different stages of buying and sourcing processes in order to have real time warnings and signals about supplier health. Depending upon performance evaluation, decision can be taken to encourage supplier or to discontinue the relationship.
It is necessary to have proper approval workflows and control mechanisms to drive all these four stages of supplier management processes to ensure adherence to defined processes.
Going for a supplier management solution could be the right approach to implement automated supplier management processes. However careful considerations need to be given before looking out for the right fit solutions. In the first step towards this, companies should assess their current maturity of supplier management processes and then workout a roadmap. Going in a gradual manner could be better than big bang approach, as it helps to know the bottlenecks and improve processes on the way. At a basic level, a company should have an internal vendor data management department responsible for keeping supplier data up to date. In the next level, a company could provide a portal based access to suppliers to update their data on regular basis and route it through automated approval processes.
There are multiple solutions from SAP like SAP SRM, SAP SLM, SAP SPM in this area which can address supplier management functionality in some way.
SAP SRM contains functionality of supplier management in a separate module called supplier collaboration. It provides a web based registration functionality with automated onboarding of supplier to portal. However there are certain gaps in the functionality depending upon the SAP SRM release level and enhancement pack level which may need customization. Workflow features are not present, which is very crucial for driving the processes in controlled fashion.
SAP SRM should be a good fit for customers having existing SAP SRM installation. They can leverage on their existing SAP SRM investments and test waters before going for an advanced application.
The latest product in this stack is SAP SLM or Supplier Life Cycle management. This is a newly launched product from SAP which addresses all aspects of Supplier management in holistic manner. SLM builds upon core functionality of SAP SRM and can work either as standalone or along with SAP ECC or SAP SRM systems.
SAP also provides a cloud based solution called Supplier infonet which works by sharing and collaborating on risk related data pertaining to suppliers and helps minimize risks proactively.
SAP SPM (Spend Performance Management) is another solution from SAP, which provides advanced analytics solution for supplier risk and performance management. The solution can be seamlessly embedded with procurement application like SAP SRM to take real time corrective actions based on analytics.
Once decided to go for a supplier management solution, customers should evaluate their existing SAP solution landscape and then try to fit the right SAP solution.
In the end, it should be a decision based on optimization of total cost of ownership which would depend upon existing investments and cost of available options.