A Manufacturing Travesty: The Procurement Blind Leading the Blind

KPMG’s 2013 Global Manufacturing Outlook, a fine piece of work conducted in partnership with a survey by the Economist, exposed a dirty secret that all of us with at least one foot in the manufacturing supply chain know to be true: we’re generally flying blind when it comes to activity lower down in our supply chain. In their survey of over 300 companies, KPMG found that 4% of companies have “little to no tier 1 supplier visibility” when it comes to “supply and capacity information” across “suppliers and logistics partners.” In other words, that’s 4 out of every 100 companies that have done nothing to understand even immediate risk factors in their supply chain.

The insights from the study get worse, in fact. 49% of those surveyed only have “some visibility” into supplier information as defined by “limited tier 1 supplier visibility but not tier 2 and beyond.” Another 32% have “enhanced visibility” as defined by “tier 1 supplier visibility and some tier 2 supplier visibility,” and 9% have “complete visibility” based on insight into “tier 1, 2 and beyond supplier visibility.”

How are we to read into these findings? To us, it seems that the data shows that roughly 50% of manufacturers are in the dark when it comes to tier 2 and lower supplier activities and behavior. Furthermore, authors of the report note that “nearly half of the companies say they lack visibility beyond their Tier 1 partners. And only 9 percent say their firm can assess the impact of supply chain disruptions within hours, although for the biggest companies (revenues of US$5 billion or more) this rises to 20 percent.”

Of course it’s easy to point fingers at this complete lack of visibility and make excuses. Here are some we’ve heard before to name just a few:

“There’s no budget for multi-tier supply risk visibility.”

“Finance is looking at supply risk for us now.”

“Our suppliers won’t give us information on their suppliers.”

But excuses are just that: excuses. Procurement organizations need to take charge of this lack of visibility by making the business case for the cost of supply disruptions and related challenges to their organization from a shareholder value perspective (see recent coverage around Accenture’s take on the topic here). Even though SAP is busy taking advantage of the ignorance of procurement and A/P organizations on Ariba network fees and their impact on suppliers, in my book they’ve made up for this behavior with the absolutely ingenious SAP InfoNet product, which provides multi-tier risk visibility across industry-based networks. See “related links” for our coverage and explanation about InfoNet – and how using it would cause companies to immediately jump from “no” or “limited” visibility to complete visibility.

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