Resiliency. It’s the word on everyone’s mind in the supply chain industry. And for good reason. In recent years, value chains have grown in complexity as organizations prioritized intricate production networks designed for efficiency and cost over transparency and resiliency.
But today, disruptions are a frequent—and costly—occurrence that have exposed the weaknesses in this approach. In fact, every year supply chain disruptions cost organizations around the world an average of $184 million according to a 2021 survey. And supply chain disruptions lasting a month or longer now happen every 3.7 years on average.
So after two years of a pandemic that has had ripple effects throughout global markets, supply chain leaders are focused on improving resilience across supply chains now and into the future.
In order to increase resiliency, companies must have a better understanding of their risk, vulnerabilities, and opportunities. And that means getting to know their suppliers and building more robust supplier strategies. After all, in today’s volatile environment, the right suppliers today may not be the right suppliers in the future—so organizations must be prepared to adapt and rapidly identify and onboard new suppliers.
However, most organizations are stuck using unreliable, time-consuming manual processes to source suppliers—making it difficult to find and vet suppliers at scale. McKinsey reports that it takes an average of three months to complete a single supplier search and more than 40 hours of work.
To bridge the gap, organizations need better tools and processes to source, evaluate and monitor their suppliers. In other words, they need better supplier intelligence.
Supplier intelligence is the data and actionable insights that help procurement and supply chain professionals make strategic decisions. With better supplier intelligence, organizations can revisit the key criteria, info, and data points that are critical to sourcing, evaluating and monitoring their suppliers, which they normally just don’t have time and resources to investigate thoroughly.
So how do you get there?
“If you want to do proper supply management, you need to have good data and good processes in place,” says Ingmar Mester, Manager of Global Procurement and Supplier Management at Hapag Lloyd and Craft.co customer.
Below we’ll outline the essential steps and criteria you need to consider to leverage supplier intelligence and improve your supplier evaluation processes.
Before you start sourcing suppliers, you need to know what you’re looking for. What kind of relationship do you want to have with your suppliers? What supplier strategy will you follow?
For most organizations, this means taking a multi-pronged approach to supplier sourcing and management. For instance, in a 2020 McKinsey survey of supply chain executives, 93% reported that they plan to take steps to make their supply chains more resilient, including:
As you plan your sourcing strategy, identify your key sourcing requirements. In addition to budget and cost-related criteria, you will likely want to factor in:
Sourcing criteria isn’t one-size-fits-all. The strategy you take will depend on a number of factors, including the type of business you operate, budget, resources, goals, and priorities. But determining your criteria up front is crucial to getting the best results and leveraging supplier intelligence effectively.
Once you know what you are looking for, then you can start searching for suppliers. First, look at data gathered on your current suppliers’ performance and quality and verify you are using reliable, comprehensive data sources.
Evaluating your data sources and supplier intelligence platforms is critical because the quality of your data will directly impact the quality of your suppliers and, by extension, the resilience of your supply chain.
And the more detailed, the better.
“The requirements and the expectations that are placed on procurement have changed drastically in the past few years,” Mester explains. “Today, you need to know what is happening in your supply chain at every moment—you need to know every detail of your supply chain and you have to be able to find that information.”
Below are six key criteria to evaluate your suppliers. Any supplier intelligence solution you use should help you source and assess suppliers based on these factors at a granular level.
Financial risks are one of the important (but oft-neglected) criteria for evaluating suppliers. If your supplier runs into financial trouble, that can quickly put your own business at risk. But uncovering the full picture of your suppliers’ financial health can require digging—especially since much of the information may be biased coming directly from the source.
Pay attention to financial health markers such as:
Another important aspect of supplier performance is quality. The quality of your suppliers’ systems, processes, products, and services can have a direct impact on your business.
There are a number of metrics you can use to assess quality and monitor supplier performance:
ESG (Environmental, Social, and Governance) factors have become an increasingly important part of designing a resilient and sustainable supply chain. ESG risks include pollution, shortages of natural resources, workforce health and safety, labor disputes, and geopolitical events.
With such a broad range of factors, it’s important to assess risk across a number of metrics:
These types of indicators will provide insight into the supplier organization as a whole so you have greater context when assessing risks. Make sure you're also well-equipped to educate and empower your suppliers to stay in alignment with your ESG goals and policies.
Managing cybersecurity threats in the supply chain is essential in today’s digital world. As the National Institute of Information Technology (NIST) explains, “the factors that allow for low-cost, interoperability, rapid innovation, a variety of product features, and other benefits also increase the risk of a compromise to the supply chain.” Risks can include tampering, theft, unauthorized production, insertion of malicious software and hardware, and other cyberattacks.
Organizations should plan for robust cybersecurity strategies to mitigate risks across the supply chain including evaluating suppliers upfront and continuous real-time monitoring throughout the relationship.
When assessing supplier risk, look for access to risk profiles that take into account various data points, such as IP Reputation, network security, hacker chatter, DNS Health, etc. Gathering multiple cybersecurity data points will help you build a comprehensive picture of their cyber landscape and mitigation efforts.
Reliable, on-time delivery is the mark of a good supplier and a key indicator of an efficient supply chain. When assessing suppliers, pay attention to their delivery performance. Poor performance (i.e., slow responsiveness and late or missed deliveries) can result in lost sales, poor customer experiences, negative brand impacts, and fines.
When evaluating a supplier, consider what type of cost structure you want, such as open book or closed book agreements. For instance, an open book contract gives you a total cost perspective of their business.
When you understand the supplier’s costs, you can better assess the value for money and whether the investment is worth it for your business compared to other supplier options.
To conduct a comprehensive supplier evaluation and source the right suppliers at the right time, you need robust and reliable supplier intelligence.
Make sure you have the right technology platform(s) in place to get the job done.
Look for a platform that:
“You need a system that goes through the data for you, classifies it, prioritizes it, and puts it at your fingertips in an easy-to-digest, easy-to-understand way. This is very important. The system must be easy to use. Otherwise, you will never get people into becoming a frequent user if it's complex for them to handle,” said Mester.
To get the most out of your supplier intelligence solution, make sure your procurement teams are invested in the success and implementation of the new technology. While traditional manual processes are tedious and inefficient, they are familiar—and that can be a hurdle for teams to overcome when introducing new tools.
In an age of complex, global supply networks, businesses must be agile and strategic if they want to compete. For procurement professionals, that means it’s no longer enough to rely on manual supplier intelligence processes. Today, procurement teams need comprehensive insight into their supplier landscape in real-time.
“In order to find the right partners, you need to have transparency,” says Mester. “It's no longer enough just to know the financial rating of the supplier. You need to know a lot more about their operational capabilities, about their plans, and you have to deal with them very differently. It is all about taking the long-term perspective, making use of scarce resources, and being able to get the best out of the supplier. And this is something which only procurement can deliver.”
Learn more on supplier intelligence platforms here.