In this guide to supplier management, we’ll learn everything there is to know about supplier management in the digital era. From digital transformation to the intelligent supply chain, this guide is ideal for the supply chain manager who wants to stay relevant and competitive in today’s fast-paced economy.
Among other things, we will learn about:
- The basics of supplier management
- Key concepts related to supplier management and supply chain management
- Supply chain management software
- How digital transformation is changing the supply chain
- How to survive and thrive in the digital era
To start off, let’s cover some of the most basic concepts related to supplier management.
Supplier Management and the Supply Chain: Key Concepts for the Digital Era
Here are some fundamental definitions related to supplier management in the digital age:
Supplier management is a term that is often used interchangeably with procurement or supplier relationship management.
This business function is tasked with a number of goals, including:
- Obtaining raw materials, goods, and services required for a business to conduct operations and produce its own goods and services
- Researching and evaluating potential vendors and providers
- Sourcing, or finding the appropriate sources for those goods and services
- Ensuring that procured materials meet quality standards
- Minimizing costs, maximizing efficiency, and streamlining the procurement process
- Mitigating risk and adapting changes that can disrupt the supply chain
Supplier management, or procurement, is a close relative of another fundamental business function…
Supply Chain Management
Supply chain management refers not only to the procurement of upstream goods, but also to the management of downstream partners.
To understand this discipline, it is important to understand the concept of the supply chain.
The supply chain refers to the set of pipelines by which raw materials are transformed into products and delivered into the hands of end customers.
At its most basic, it includes:
- Suppliers of raw materials, goods, and services
- Producers, or businesses that transform those materials into a product
- Consumers who purchase the end product
This simple representation is, of course, much more complex in practice.
In the real world, the supply chain also includes:
- Manufacturers that transform raw materials into usable goods
- Warehouses that store inventory
- Distributors who transport goods and services to retailers
- Retailers that sell goods and services to the end consumer
Supply chain management, in short, includes supplier management, as well as the management of downstream distribution and vendor relationship management.
There are a number of sub-functions included within supply chain management, including:
- Logistics, the management of the transportation of goods and services into and out of an organization
- Inventory control, which ensures that inventory supplies and costs remain stable
- Product life cycle management, which focuses on the life cycle of a product from its inception and growth through to its eventual decline
- Supply chain planning and strategy, the activities that are designed to create an aim for maximizing supply chain effectiveness and performance
Clearly, supplier management is an important piece of the supply chain management function – after all, production, distribution, and sales all depend on efficient upstream productivity.
The Digital, Intelligent Supply Chain
Many industry-leading organizations recognize that the supply chain is evolving.
McKinsey even dubs the modern supply chain “supply chain 4.0,” claiming that the modern supply chain implements new technology, including:
- The internet of things (IoT). Electronics, sensors, and microchips are being integrated across the entire supply chain. This adds an unprecedented level of visibility into the flow of goods and services. And it also opens up new possibilities in terms of flexibility, speed, and responsiveness.
- Robotics. Robots are already being used in manufacturing, warehouses, and assembly. In the coming years, though, autonomous robots will become more and more ubiquitous, even working alongside humans in certain situations. Given that robots can work tirelessly and continuously, we can expect to see further changes to the supply chain in the coming years.
- Big data. The massive quantities of data being collected by sensors, robots, software, and other sources can all offer insight and foresight. The effective use of this data can offer extraordinary gains when it comes to supply chain efficiency, risk management, and error reduction. However, such advances also require that supply chain professionals transform their operations … and their mindsets.
- Artificial intelligence. With sufficient quantities of data, artificial intelligence (AI) can automatically recognize patterns and “learn” from data. It can even automate certain levels of decision-making, further decreasing costs, improving efficiency, and enhancing productivity. Gartner, for instance, suggests that contract management – a key function within supplier management – will become more and more automated in the near future.
Effective use of these technologies enable new levels of efficiency, productivity, and innovation within procurement and the supply chain.
A number of trends are driving these changes, including customer demand, technological innovation, and marketplace pressure.
To survive and deliver value in the digital economy, supply chains must become more precise, granular, and agile.
However, implementing new software is just one small step in the journey towards a digital, intelligent supply chain.
To become fully digitized, supply chains must undergo large-scale digital transformation.
Digital transformation is the process by which an organization leverages technology to improve business processes, products, services, strategies, and more.
In short, organizations become digitally mature through a process of digital transformation.
Every organization is different and will have different agendas when it comes to digital transformation.
As mentioned above, a number of specific trends are fueling digital transformation in this industry, including competition and increasing customer expectations.
There are a number of barriers to supply chain transformation, however – Jabil has classified these challenges into three categories:
- People. With the right skills, people can facilitate and fuel organizational change and digital transformation. However, today’s work environments are changing rapidly and becoming more sophisticated with each passing day. Organizations must find ways to keep employees trained and productive – and they must also cultivate mindsets and attitudes that are open to digital technology.
- Processes. On the surface, the supply chain will not change. That is, it still performs the same function for organizations. Yet thanks to the advent of new technology, job duties, workflows, and overall business practices will evolve.
- Technology. Technology enables change, but it also presents a barrier for many organizations. Not only does it require extensive training, as mentioned, it also requires that supply chain professionals integrate completely new processes into their supply chain management function.
Overcoming these challenges, as we will see below, requires an effective digital change management strategy, robust employee training, a sophisticated business process management function, and a forward-thinking supply chain strategy, among other things.
Frequently Asked Questions (FAQ) About Supplier Management
To better understand supply chain and supplier management, let’s explore some of the most frequently asked questions about this topic.
Why is supplier management important?
To operate effectively, organizations need to procure the right materials on time and at cost.
This is the main reason why supplier management is important.
However, effective supplier management also offers other benefits, such as:
- Increased efficiency and decreased costs
- More responsive, adaptable supply chain management
- Simplified workflows for the supply chain department, the organization, and partners
- A greater competitive advantage
- Greater profit potential
Procurement and other supply chain management functions are both becoming more and more critical for the modern organization.
Which jobs handle supplier management?
Supplier management – that is, procurement – is handled by procurement departments, which are part of the supply chain management division.
Typically, jobs related to this area include:
- Procurement managers
- Supplier relationship managers
- Purchasing coordinators
- Supply chain analysts
- Procurement buyers
- Procurement representatives and specialists
The larger the department, the larger the procurement team.
How is supplier management measured?
Procurement metrics revolve around areas such as:
- Cost savings
- Procurement timelines
- Contract compliance
- Procurement ROI
In other words, procurement measurements should focus on how efficiently procurement can acquire goods and services, the quality of those services, and procurement costs.
What steps should procurement managers take to keep up with digital change?
As mentioned, digital transformation in the supply chain impacts the entire division, including procurement.
Digital transformation of one’s own procurement function can offer a number of benefits, including:
- Increased efficiency, effectiveness, and profitability
- More speed and flexibility across the supply chain
- Improved profitability for the entire organization
- A greater ability to meet customer expectations
However, digital transformation does come with its own set of challenges.
In order to become more digitally mature and keep up with the digital economy, organizations must overcome certain challenges.
- In order to be productive and operate in the modern supply chain, employees must acquire new skills and learn new workflows. Digital tools require an entirely new skill set – and since technology continually evolves, organizations must continually train new employees. The digital employee training program can vastly improve efficiency in procurement and supply chain management.
- Organizations must successfully adopt new technology stacks and integrate those with the rest of the organization. A single tool cannot transform an organization. And neither can a set of new tools, unless those tools work together seamlessly. This means implementing and integrating “technology stacks,” rather than a single platform.
- The digital, intelligent supply chain is only as strong as its weakest link – to reap the benefits of digital transformation, every link along the chain must fully participate. If one partner increases its capabilities dramatically – but other partners fail to keep up – then the supply chain will not see any substantial gains. For the entire supply chain to see substantial improvements, partners and vendors must all work together.
In the following sections, we will look at some of the best approaches for digitally transforming the supply chain.
Supply Chain and Supplier Management Software
Having the right software is essential for businesses to operate successfully in the digital age.
Here are some essential supplier management tools that are being used by procurement professionals:
Integrated Supply Chain Management Platforms
An integrated supply chain management platform is a tool that, as the name suggests, includes a diverse set of capabilities.
These umbrella platforms are big-picture solutions that integrate functions such as:
- Inventory management
- Warehouse management
- Visibility into the supply chain
- Supply chain planning
- Supply management
- Logistics management
- Supplier management
Given the depth and breadth of such platforms, organizations cannot simply deploy these platforms and expect overnight results.
As mentioned above, to become truly digitally mature, organizations will need to implement new digital strategies, train employees, and much more.
Procurement tools are dedicated specifically to supplier management.
These tools include functionality such as:
- Automating purchases
- Managing supplier relationships
- Streamlining expenses and approval
- Contract management
- Spend tracking and analysis
- Procurement analytics and reporting
There are quite a few procurement tools on the market, and each one should be evaluated carefully before making a purchase.
A few considerations include:
- The core features of the platform. Naturally, the main features offered by a platform will be of primary importance. An organization should evaluate which features it needs – both now and in the future. Then those should be compared against the actual features offered by different platforms.
- Costs. Not all platforms are created equal. And not all platforms cost the same. In some cases, more costly platforms can deliver significant returns on investment. However, procurement managers should remember that those returns will only be realized if employees are competent and productive with the new software … which is why employee training and adoption efforts are equally important.
- How well it can integrate with the existing technology stack. A new tool may offer excellent features at an excellent price. But if it cannot integrate well with the existing technology stack, then it may be an unwise investment. Software ROI depends, after all, on how effectively a tool is utilized, as well as on how well it works with other tools and platforms.
- Scalability. Not all tools offer the same level of scalability. An organization that grows in size, for instance, will require certain features not offered by platforms geared towards small- to medium-sized businesses. It pays to look into the future and determine whether these tools will continue to be valuable in several years.
Procurement professionals should also consider how viable the platform will be in several years. In other words, will it help the supply chain management department meet its digital transformation goals, now and in the future?
Purchasing software shares a number of features with the other tools mentioned here.
However, purchasing platforms focus specifically on purchasing, which is only one aspect of procurement.
These platforms are designed to:
- Control and analyze spending
- Streamline purchasing, through purchase orders, requisitions, invoicing, and more
- Provide insight into the procurement pipeline
- Streamline the purchase process
In some cases, an organization may choose to implement both a purchasing platform and a supply chain management platform.
However, since many tools provide overlapping functionality, it is worth investigating the options carefully before making the investment.
After all, these investments have a substantial impact on business processes, supplier management, and the organization’s digital operations.
To better inform decisions around software investment, it pays to investigate digital transformation in depth.
Digital Transformation and Supplier Management
Earlier, we explored some of the technologies that make up the intelligent, digital supply chain.
From AI to robotics, the intelligent supply chain is evolving rapidly.
To keep up with these trends, it is important for procurement managers and supply chain managers to do their research and stay informed on digital transformation.
Top Advantages to a Digital, Intelligent Procurement Function
Earlier, we briefly mentioned some of the reasons why an organization should improve the digital capabilities of its supply chain function.
Let’s explore these benefits in more detail.
An intelligent, digital supply chain…
- Is more flexible and responsive. The right technology can increase agility within the supply chain. Participants can react more readily to problems or disruptions, source materials more quickly, and save time, among many other benefits. Flexibility also allows supply chains to provide more customized products and services to the modern consumer.
- Can keep up with customers’ changing expectations and demands. Today’s customers are demanding more customization, speed, and flexibility from retailers. Thanks to technological innovations in the supply chain, it is now possible to deliver products more quickly than ever.
- Reduces costs. A lean, intelligent supply chain can also cut costs significantly. Reduced timelines, reduced human labor costs, lower error rates, and other factors all contribute to decreased expenses and higher margins – which benefits procurement as well as the entire organization.
- Increases visibility and security. The Internet of Things (IoT), data, analytics, and other technologies all add a great deal of visibility into the supply chain. That visibility can help procurement managers spot weaknesses, deficiencies, bottlenecks, errors, and more.
Ultimately, an organization that can exploit modern technology to its fullest extent will realize greater benefits across the entire organization.
Challenges to Digitally Transforming the Supply Chain
Let’s break down some of the top challenges to digital transformation in supplier management and supply chain management:
- Employee training
- Buy-in from leadership
- Participation from supply chain partners
- Employee support
To overcome such challenges, it is important to develop a powerful vision – and a robust strategy – for organizational change.
Organizational Change and the Intelligent Supply Chain
Organizational change management is a business discipline dedicated to designing, implementing, and coordinating organizational change projects.
The nature of such changes can vary widely, but tend to revolve around people, processes, technology, or a combination of these elements.
Here are a few examples of organizational change:
- Restructuring. Organizational restructuring involves changing the structure of teams, departments, or divisions. Many factors can drive restructuring efforts, such as mergers, acquisitions, or new product lines.
- Organizational culture change. An organization’s culture has a significant impact on organizational productivity, employee sentiment, workforce productivity, and more. When it comes to digital transformation, for instance, certain cultural traits can positively impact a change effort. When workers are open to change, they will be more likely to support new technology and workflows – when they are not, resistance can become a serious obstacle to change.
- Digital transformation. Digital transformation, as covered elsewhere in this guide, can involve a multitude of smaller organizational changes, from the adoption of new technology to culture changes. These changes are typically built around a digital transformation strategy and a digital transformation plan, which may take several years or more.
- Digital adoption. Digital adoption is a business function as well as a stage in the digital transformation journey. Digital adoption means fully utilizing technology for its intended purpose. Unless organizations focus on effective adoption, they risk underutilizing their technology – and losing money on their technology investments.
To successfully implement a change, businesses must do more than mandate change – they must take a formal, structured approach.
Most change management frameworks revolve around change at the individual level.
By enabling change for individual employees, they simultaneously remove some of the main obstacles to change – while mobilizing support and improving the chances of success.
Common steps in change management frameworks include:
- Building awareness of the need for change
- Motivating and engaging employees through incentive programs, short-term rewards, and effective communication strategies
- Training employees in order to provide them with the skills and knowledge they need to succeed
- Maintaining accountability and ensuring that employees take action
- Instituting change to make them a permanent part of the organization
An approach such as this can dramatically increase the chances of successful change, while also reducing costs and increasing efficiency.
How Digital Adoption Can Streamline Digital Transformation
Another important method for improving digital transformation efforts is through digital adoption.
A digital adoption program is designed to help businesses integrate and fully utilize new technologies.
An effective adoption effort can…
- Increase employee proficiency
- Decrease training timelines and costs
- Accelerate time-to-competency
- Improve productivity and performance
- Reduce employee confusion and frustration
An effective adoption effort revolves around:
- User onboarding. Any time an employee begins using a new software platform, they must be onboarded. That is, they must be introduced to the software’s features and begin training. To ensure that employees become competent and confident, organizations must minimize onboarding friction by simplifying the onboarding experience, providing efficient training, and ensuring that employees have adequate support.
- User training. User productivity depends a great deal on how well they are trained. Without adequate training, employees will become frustrated and they will not be productive. In turn, business performance and software value will both suffer.
- Maximizing software utilization. If employees only use half of a platform’s available features, then the organization will only realize part of that platform’s potential value. By promoting particular platform features, an organization can increase software utilization, employee productivity, and software ROI.
- Continuous micro-training. Today, employees must continuously learn new skills, new software tools, and new processes. But many of the most common training techniques, such as human-led training efforts or even video training, are inefficient. Instead, organization should implement just-in-time training, through new tools and technology, such as digital adoption solutions.
Digital adoption platforms (DAPs) are tools designed to streamline the digital adoption phase of digital transformation.
They also act as employee training platforms that can help workers stay productive and efficient, even in today’s dynamic work environments.
These tools include important features that lighten the load for trainers, such as:
- In-app walkthroughs. An in-product walkthrough takes users one step at a time through a series of tasks or actions. Pop-up bubbles explain what needs to be done and when, directly inside the target platform. For enterprise software, such as procurement management platforms, such walkthroughs can dramatically improve knowledge retention and employee productivity.
- Product tours. A product tour is similar to a walkthrough. But these tours are designed to help familiarize a user with an entire product. It is useful during user onboarding or during software trials, since it can demonstrate a platform’s value promise in a short amount of time.
- Contextualized guidance. Contextualized guidance refers to assistance that is offered directly inside the relevant context. Digital adoption platforms offer guidance in the moment of need, which reduces technical support costs and accelerates time-to-competency, among other things.
- Software automation. Software automation can take over repetitive tasks that require little cognitive input. Effective use of automation can result in a number of benefits, from increased productivity to decreased error rates.
- App analytics. Software analytics can monitor user behavior in an application. That insight can be used to identify sticking points, errors, training needs, and more. In turn, training managers can further improve training and development programs.
Given the fact that organizations are continually changing, businesses must rethink the way they train their employees.
Ongoing micro-training, for instance, can deliver just-in-time information to employees, which improves overall productivity and performance.
At the same time, businesses can lighten the load for their training staff.
Supplier Management: Tips and Strategies for the Digital Age
Procurement departments that want to stay modern and current must be proactive.
Here are a few tips and techniques that can help supplier management departments stay modern, effective, and relevant in the digital era:
Exploit emerging technology
Earlier, we covered some of the major technologies that are affecting supply chains across the globe.
- Procurement software platforms
- Supply chain management software
- Artificial intelligence (AI)
- The Internet of Things (IoT)
- Big data and analytics
To name just a few.
Although adopting such technology can be daunting – if not overwhelming – digital transformation is a matter of survival for supply chain departments.
To keep up with the curve, supplier management departments should:
- Regularly research new technology
- Learn from industry leaders
- Attend conferences, workshops, and events
- Educate themselves and their departments about new trends
- Invest in and implement new technology
The first step is actually making a commitment to these efforts.
Though earning organization-wide commitment may take some effort, such a commitment is essential for companies that want to a procurement function that stays effective in the digital era.
Embark on a digital transformation journey
Supplier management should join with the entire organization on a journey towards digital transformation.
Naturally, digital transformation is no easy feat – it involves multiple organizational changes over a long period of time.
These can include changes such as:
- Redesigning and reengineering business processes
- Changing organizational culture
- Adopting new business approaches and mindsets
- Adopting new digital technology and digital-first business processes
As mentioned earlier, it pays to invest in structured change management, digital adoption, and other business functions that can facilitate digital change.
Take a holistic view of the supply chain
A supply chain is only as strong as its weakest link.
To prevent problems that can interfere with supply chain performance:
- Work with partners to develop standards and common operating procedures
- Increase real-time visibility into the supply chain with the right technology
- Adopt supply chain management platforms and procurement tools that increase the speed and efficiency of key procurement functions, such as sourcing and purchasing
Supplier management specialists understand that the supply chain is composed of an interdependent network of partners.
Without their cooperation and support, it will be impossible to truly take advantage of the benefits presented by modern technology.
Digital transformation is a necessary first step – but unless partners transform as well, then the gains will be minimal.
Supplier management is undergoing transformation at the global level.
New technology opens up new possibilities. From increased efficiency to improved agility, procurement and supply chain management can add a great deal of value to the organization.
While technology can dramatically increase performance, implementing that technology requires a great deal of effort.
To keep up and stay relevant, organizations must rethink the way they deliver value, which often requires organizational change and strategic product adoption.
With the right digital transformation strategy – and the right technology – supplier management can enhance its value offering to the organization, become far more effective, and stay competitive in today’s dynamic economy.