Tricky Business with Supplier Lifecycle Management

Spend Matters welcomes this guest post by Santosh Reddy, of GEP.

ERPs are funny. Businesses are even funnier.

The last month saw me in extensive discussions with threes companies in different industries and continents on one topic – supplier information, from the moment a supplier is identified as a potential source to being selected for procuring from and paying to. The approaches and the reasons behind how widely the companies varied in their final solution left me wondering about the constraints on efficiency imposed by legacy systems.

The need for a solution revolves around new supplier portal implementation by these companies.

Company No. 1 is a U.S.-based multibillion dollar company in the utilities and energy industry. Supply risk and proactive maintenance is critical to ensure smooth and uninterrupted operations. Their operations are run out of multiple instances of ERP systems, so the same supplier could be existing in each ERP with a different data set. In addition, the ERPs are oversimplified by limiting supplier master records to have only one location reference so if a supplier had two different remit to locations, those were two different records. Although not observed in this company’s case, it is very similar to one of the three largest pharmacy chains in the U.S. to have a different supplier code for different approved payment terms for the supplier. So while the system I was working with could significantly consolidate their vendor base to have a unique reference per supplier, constraints per ERP system does not permit them this benefit. So for the company in question, if there is a supplier with 50 locations they can place orders from or send remittance to, they will be translated into 50 supplier master records.

Company No. 2 is a U.K.-based financial services company, with an annual revenue less than a billion GBP. However, because of the nature of industry it is in, the company requires to qualify and segment their suppliers upfront and gather a lot of information before going into business with them. Even after qualifying for business, the supplier performance and risk are tracked frequently and an intelligence report is maintained on each of them to assist in decision making. Given this background, adding a supplier to the system is not as simple as it sounds. However, in the current environment, most of these activities were performed manually using Excel and Outlook. Approved and blocked vendor lists are maintained on an Excel file available on SharePoint, and it is perfectly possible for a buyer to completely ignore them. This company opted to ignore all their existing systems including their ERP and shift everything to one platform that automates and puts necessary controls in place for the supplier onboarding, segmentation and usage controls. All the people involved in the source-to-pay process, including the client and supplier teams, see only one reference on the system for each of their supplier. If they are doing business with 50 locations of the same supplier, they will be 50 locations added to one supplier master record.
The solution outcomes in these companies were polar opposites in supplier data clean up, segmentation and active management, and the root cause is the constraints imposed by the legacy ERP systems to which the data needs to sync back with.

Company No. 3 is a U.S.-based multibillion dollar company in the oil and gas industry with operations covering both upstream and downstream. They have the same ERP system, but different instances for each of the business operations in the extraction to refining and downstream distribution business, and by region as well. The supplier overlap between these companies is minimal, and where it exists, it was already managed fairly decently. However, the challenge lies in bringing onboard a supplier that services its fuel stops in remote areas of even developed nations, and the companies that they work with in trouble-ridden African nations. How good is a supplier portal if you are working with government houses that act as representatives for a number of smaller suppliers? Suppliers in remote areas don’t see the incentive to be on a portal to do business due to their confidence in the continuity of the business and the high cost of exit to the company. A system in such instances can only go so far with the advantages it can offer.

In hindsight, after these discussions, one this is certain: supplier lifecycle management will be seeing a lot of focus in the next few years and could as well be the next big thing on the evolution of SCM. So, better start planning for it.

For more inventive thinking on procurement, visit the GEP Knowledge Bank.

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