What Is Poor Supplier Information Management Costing Utilities?

By Mary Ellen Mitchell

SIM is the process of measuring and monitoring supplier performance and supplier business process and practices for the purposes of consolidating supplier information in one database, reducing costs, mitigating risk and driving continuous improvement.

How much do you really know about your suppliers and how much are they costing you? In a recent Advanced Market Research (AMR) study, it was estimated that a typical company spends between $585 to 1,000 per supplier annually. AMR also noted that by adding supply management technology, utilities can reduce their supplier management costs by a whopping $848 per supplier. Why is that?

Utilities have a lot of data about their suppliers. Somewhere. They are not exactly sure what it is or where it is, but they have it. And, it’s probably across multiple databases that have never been integrated. So, the utilities are supporting multiple versions of the same information. Often, they don’t have the right data and, in an emergency, disruption to the supply chain can be devastating and costly. The fact is there is no point in having supplier data unless it is accessible and accurate.

According to a report from Procurement Leaders, 90 percent of procurement teams do not collect performance data on suppliers, putting these supply chains at risk. Clearly, software and automation can fill the gaps to get the right data, but equally important is to use the data once you have it. By adding the right technology, we have experienced hard dollar cost reductions from 5 percent to 17 percent for goods and services for our clients.

As utilities see increased dependence on outsourcing capital projects and internal services, the need for supplier information and performance monitoring is critical to managing the supply chain effectively. How well are you managing the relationship with your suppliers? Do you have the “right” suppliers?

Current State and Questions

All too often, companies and organizations such as utilities say they have developed excellent relationships with their suppliers. They say things like, “they have been providing us goods and services for over 20 years” or “they are fully engaged and have deep relationships within our executive team” or “they are the only ones that can provide the product or service.” Yet, we also hear that utilities are struggling with revenue and infrastructure costs.

According to the American Water Works Association (AWWA), an estimated $1 trillion is necessary to maintain and expand service to meet water and waste water demands over the next 25 years. Capital improvement project costs are spiraling, and low bids are plagued with increasing numbers of change orders adding millions to the initial project projections. Infrastructure construction and engineering overruns are imposing major delays and creating funding problems that are not easily resolved through rate increases and new debt. How many of these cost issues are shared with your suppliers? Do they care?

You Don’t Know What You Don’t Know

Many questions may arise when considering your suppliers.

How well do you know your suppliers? Are your suppliers investing in upgrading their products and services? Are they sharing those increased margins with you with better pricing? Are they offering suggestions on how to derive more value? Are they compliant with the contract terms? Are you getting what you negotiated? Are you working with your suppliers to adopt best practices and policies? Do you have the right suppliers for your future goals? Do you have the right metrics and baseline data to measure their compliance and performance? Are you continuously sourcing for new suppliers seeking better solutions? Do you understand your companies spending behaviors? Do you have accurate spend information? Do you have the right team in place to qualify the supplier and monitor their performance? Do you have the right technology?

What’s Changing in Supplier Information Management?

Supply management today is undergoing a transformation from a tactical, transaction-oriented function to a strategic capability at many companies. Why the change? Utilities are finding that more than 80 percent of their spend is with only the top 20 key suppliers. The other 20 percent is spread to literally hundreds of other suppliers. Sadly, they are often undermanaged, and collectively they can add up to a significant cost to the company. Understanding the power and profitability that can be created by unlocking the hidden potential of the supplier community rests with finding a way to understand strategically what you need from your suppliers to become world class yourself. The information is within your reach, but you need some way to pull it all together.

Information technology has become a key enabler in supply management. It has created great strides in improvements in the integration of supply management processes such as strategic sourcing, spend analysis, negotiation, contract management, and supplier information management (SIM). These tools and software are changing radically how businesses are relating to their suppliers and to their customers. It is providing critical information about the suppliers and their performance. Master Data Management SIM software automates and integrates the supplier’s information providing a consolidated approach to analytical reporting, key supplier information, metrics and risk assessment. However, technology alone cannot overcome long term poor purchasing and supplier management practices. Typically, businesses are struggling to catch up with the technology. Often technology can be the driver in the transformation process and aid in revolutionizing the supplier relationship.

Of course, transformation can only happen if the executive leadership recognizes the possibilities and benefits of promoting suppliers as an extension of the business and working collaboratively to develop new ways to capitalize on solving problems and sharing ideas. The challenge is how to deliver the right messaging to the suppliers by communicating your strategy and technology objectives in a format that incents suppliers to cooperate.

Getting Started – The Assessment Phase

Invest in an integrated spend analysis and supplier information management software. Having the correct data on how much you are spending with your suppliers and how they are performing against their agreement is paramount to understanding and assessing how you will approach cost reduction and risk assessment. When shopping for software, look for a program that has MDM integrated spend analysis and SIM features. This type of software contains invaluable analytical features on your spending by supplier, by commodity and performs tasks for you, such as providing all your suppliers’ updated profiles, managing and monitoring supplier performance and identifying and accommodating new suppliers in one easy to use dashboard and platform. The return on investment is months, not years.

Mary Ellen Mitchell is the president of SpendCheQ, a software-as-a-service company providing integrated supply chain and procurement solutions. She is an experienced supply chain professional with extensive consulting and advisory experience in global procurement, supply chain and spend management at a strategic and operational level.

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