2020 Predicaments in Supplier Management: Top 3 Problems in SXM

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(Editor’s note: Spend Matters’ analysts are taking on the new year by looking at their areas of procurement technology to see what’s broken and what can and should be fixed this year. Here, analyst Magnus Bergfors lays out the predicaments faced in supplier management (SXM). And for our PRO subscribers, his other post today offers his predictions for 2020.

Just before the holidays we published a PRO brief (The 5 Building Blocks of Supplier Management Capabilities) on the complexity of the SXM market and created a framework for how to define this space. That article highlights one of the lingering issues with supplier management: There is no one-size-fits-all solution here. That is, however, a very broad predicament, and in this article we want to break this down into a few more specific predicaments.

Top 3 Predicaments

1. Supplier data remains fragmented and poorly managed

Despite all the talk about data being the “new oil” over the last couple of years, the fact remains that most organizations have no real strategy when it comes to managing supplier data. Supplier data exists in silos in ERP solutions, in AP solutions and in a number of different procurement solutions, and there is often a lack of understanding in the procurement (and finance) organizations about what supplier master data management (MDM) means and why it is important. Even the IT department may misunderstand the area by viewing it merely as a technical data integration problem rather than a larger business problem.

This misperception is also not just a practitioner issue. Most procurement suite providers and vendors of supplier information management systems (SIM) claim to be able to do supplier MDM without necessarily having the required capabilities. Just the ability to maintain a supplier profile is not enough; you also need the capability to translate the supplier data into the formats of all other systems that need it (if it’s not needed in other systems it’s not master data) and you need the proper controls over who can edit and approve master data, for example. In some cases, the SIM tool’s data file is the master, and in other cases, it’s not (but still needs to be synchronized).

There are a few procurement vendors who can do this well, but in most cases, you would need to turn to a real MDM solution to do this (which adds to the complexity that a buyer would hope the best-of-breed provider would be solving with its solution). Procurement solutions are, however, well-suited to collect supplier data from the suppliers and make sure it’s up to date. This is often done on a supplier self-service basis where the supplier is responsible for maintaining its own data in whatever solution you as a buyer are using. But despite almost all vendors now offering n-to-n supplier networks, that supposedly allows for uploading data once and then sharing it on a permission basis, suppliers are overwhelmed by hundreds of different networks, portals and applications where they are supposed to maintain their data. And in many cases the actual data sharing is in reality limited, suppliers often need to upload the same information many times in the same “network.”

2. Supplier segmentation stops at identifying strategic suppliers

Large organizations have tens of thousands of suppliers and nowhere close to enough people in procurement to manage them all. This means that you somehow have to choose which suppliers you manage and how you manage them. In other words: supplier segmentation. Now, this concept is well-known and accepted as a best practice (after all the Kraljic matrix, circa 1983, is one of the more widespread procurement frameworks). But, in reality few organizations actually do it consistently, especially in the indirect space. Even in direct materials, where suppliers are typically more consistently managed, there is often a lack of differentiation in how the suppliers are managed, especially for the 80-90% of vendors that represent 10-20% of the spend). At most organizations, they’ve identified their most strategic suppliers and put their best resources toward managing those, but often without much of a systematic approach beyond quarterly business reviews.

Speaking of systematic approaches (or lack thereof), there is a lack of built-in, out-of-the-box support for more sophisticated supplier segmentation in most supplier management solutions and procurement suites. Sure, you can add it as a field in a supplier profile and require it to be filled out during supplier onboarding, but that's about it. There is no guiding of the segmentation itself based on total spend, category strategy or other parameters that define the segment the suppliers go into, nor is there typically a way to apply multiple segmentation strategies concurrently (e.g., based on risk type, performance rating, item/service type, supplier industry, etc.) and then apply those to various workflow processes.

And speaking of category management, that leads us to the final predicament of this series ...

3. Supplier management is disconnected from sourcing and category management

As discussed in our posts on Sourcing in 2020 (Predicaments and Predictions) there is a disconnect between sourcing and category management. This is also true for supplier management. Supplier management in practice is generally disconnected from both sourcing and category management.

On a strategic level, supplier management has a poor connection to the category strategy. Does the category strategy suggest deeper supplier collaboration and co-innovation (something that is supported by specialized stand-alone solutions today while the suites have only very basic collaboration support) or do you need to only keep track of supplier master data in order to execute transactions (or something in between where you also measure basic performance against the contract or a simplistic scorecard)? Do you need to have elaborate contingency plans that are agreed to and maintained with a supplier — or will you just quickly replace the supplier if something happens? All this and a lot more needs to go into the supplier management approach and should ideally be part of a solution guided process based on the category strategy and supplier segmentation.

On a more tactical level there needs to be a better connection between sourcing and supplier management. Here the problem is that a lot of the information that a supplier submits in a sourcing event is the same that goes into a supplier profile, yet the supplier is often forced to enter this information at least twice, in some cases even more if the suppliers participates in multiple (poorly constructed) sourcing events in a year. Combine this with the limited data-sharing capabilities of procurement suites and networks, and you place a lot of work on the suppliers just to upload and maintain basic information. That’s time that could be used for much more value-adding activities.

So what needs to happen to address these issues? See today’s Predictions installment in our SXM 2020 series!

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