For many years eProcurement technology limitations in the areas of supplier identification, onboarding, and risk management presented a significant challenge. The delay in capturing and extracting meaningful data to drive buying decisions on the frontlines meant that most organizations were flying blind.
As a result, strategies such as vendor rationalization represented a workaround opportunity for procurement departments by compressing the number of suppliers to a more manageable level. The perceived added benefit was that buying companies could negotiate volume discounts with suppliers producing immediate and easy-to-identify savings through the compression route.
However, as companies later discovered, the initial “stabilizing” benefits of this static snapshot of supplier capability would erode over time. In other words, supply network visibility and resilience are constantly changing, especially as globalization dramatically extends supply chains.
For example, a major U.S.-based retailer discovered that over time the initial savings and related benefits they realized through the rationalization of their supply chain eroded. Within a few years, their average cost of goods actually increased by 23% above open market costs. However, increasing costs resulting from the loss of total, real-time market intelligence is just one significant problem.
The risk of limited visibility
One of the biggest lessons we have learned from the global pandemic and the continuing uncertainty of geopolitical events is that our supply networks are constantly changing. In other words, our supply network IQ is based not only on what we already know but also on our ability to identify and respond to future, unknown events, whether they come gradually or rapidly.
At this moment, what do you know about your network of suppliers? How are they connected to the extended supply chain, and where within that chain are your potential weakest links?
Although its global impact was not on the level of the COVID-19 pandemic, the 2009 H1N1 virus still presented significant challenges related to the lack of visibility into extended supply chains.
In trying to limit the spread of the virus, the Mexican government decided to close all businesses – including factories, that were non-essential. Unfortunately, a lack of supply chain visibility resulted in the closing of a manufacturing facility that produced packaging for consumer goods and the pharmaceutical industry. This decision meant that closing the plant cut off the supply of packaging needed to ship the H1N1 vaccine.
The above example demonstrates that key decision makers lacked a clear line-of-sight knowledge and understanding of the involved supply chains.
There is little doubt that a major crisis magnifies the impact of breakdowns in supply networks due to a lack of visibility. However, the day-to-day erosion of knowledgeable insight into your supply chain may be slow but no less damaging.
While we have undoubtedly made incredible advancements with the advent of digital technologies such as Artificial Intelligence (AI), technology alone is not enough.
What is also needed is a partnership with a technology provider whose expertise can leverage the automation to provide you with in-depth and extended “DeepSee” supplier profiles in real time. Such insights across your existing supply network allow you to identify previously unknown and potentially new partners to better integrate and expand your supply network’s ongoing reliability and resiliency.
In upcoming posts, we will examine more closely the multiple risks organizations face meeting ESG and diversity objectives, including the impact of geopolitical events and their subsequent effects on areas such as energy supply.