Wednesday 12 August 2015

Reduce Supply Risk through eSourcing

Authored by Khizar Farooq

Rise of supply risk is nothing new for sourcing specialists. In late 19th century corporations rapt off from vertical integration as common practice, lead manufacturers an service providers to crucial business risk due to external supply related issues.

These risks can be epoch-making. From supply interruptions that cease production lines to supplier quality and low performance issues that can mutilate customer satisfaction or cause product recalls, even issues with the smallest of suppliers can create chaos with a company's top and bottom line. The great thing is that numerous progressive thinking sourcing companies have begun to consider ways to actively minimize and control supply risk. Some have adopted financial and functional monitoring capabilities that foresee the percentage probability of supplier bankruptcies. But these approaches merely encompass one piece of the supply management equation. 

Procurement teams can also reduce supply risk by re-evaluating the ways in which they employ eSourcing packages. For instance, by actively managing supplier certifications and qualifications in a common database and utilizing collection templates to accumulate and evaluate supplier responses, sourcing specialists can better understand supplier capabilities and quality levels before they consider award decisions. In the manufacturing industry, for instance, a procurement group may utilize an eSourcing software to monitor and manage process certifications such as TS and ISO and supplier quality. Questionnaires and supplier development surveys might be included to better understand present or future at-risk suppliers.

During the negotiation and bid evaluation process, eSourcing packages can also help reduce supply risk. For instance, by utilizing a classic 60/20/20 split of business approach the way TOYOTA has been doing for years - an organization can decrease its reliance on any single source of supply, while still developing a preferred option and conducting joint cost take-out efforts. The good thing is that eSourcing packages can enable a 60/20/20 split while assuring the absolutely lowest total landed cost through state-of-the-art, solver-based post-bid optimization`capabilities which establish ideal awards scenarios. 

Yet in other cases, we have known buyer companies to impede suppliers from particular regions (e.g., China) in bidding events by a particular factor (e.g., 10%) because of existing spend concentrations in certain regions. The notion, in this case, is that any more regional spend concentration would increase entire supply risk due to the chance of particular country-related issues (e.g., currency inflation or a port disaster). 

Without question, an eSourcing suite is not an alternate for managing the ongoing operational and financial performance of a supply base. But when deployed along with other capabilities and processes, eSourcing suites can serve an essential role in reducing a company's overall supply risk and exposure.