Supplier management is often far from top of the list when it comes to corporations’ strategic priorities. But the intricacies of the buyer-supplier relationship collectively make a significant impact on business performance, and ignoring that potential can mean bad news.
Just ask North American Automotive, whose analysis released last year found that leading auto companies General Motors, Ford, Nissan and FCA all missed out on a combined $2 billion because they did not strengthen their supplier relationships as much as competitors had.
Or, ask U.K. grocery chain Tesco, currently in the midst of a PR crisis and on the wrong side of regulators after reports emerged this week that the company had deliberately delayed payments to its suppliers.
“Most large organizations aren’t doing a very good job of using data to manage their suppliers, and they aren’t doing a good job with collaborative tools,” said Kent Barnett, CEO of ClientLoyalty. His company is operating, in beta phase, a new platform that uses data analytics to improve the buyer-supplier relationship.
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An expansive collection of data is used to generate a Loyalty Index, a score that helps both suppliers and buyers understand the strength of their partnership. The technology, Barnett explained, aims to help procurement executives meet expectations from their higher-ups.
“As we talk to chief purchasing officers, there is a push at the board level for them to manage suppliers, to improve quality and reduce costs,” he said. “I think it’s very strategic to a number of leading organizations.”
Today, data can be collected from almost anywhere. And there are a multitude of factors that impact the supply chain — from geopolitical factors, business and credit histories of these corporate partners, market conditions and even the weather.
The globalization of the supply chain has exposed these companies to even more risk, the CEO said.
“When you throw in global entities [into the supply chain], you run country risk and foreign exchange risk and those types of things,” Barnett stated. “Without a doubt, the globalization of the supply chain for organizations adds a significant element of risk.”
Not only does a global supply chain increase risk exposure, it also magnifies the volume of information a corporation would need to collect to assess that risk.
In speaking with procurement and purchasing professionals, Barnett said that there are three main pockets of data that ClientLoyalty aggregates: operational and key performance indicator data, experience and survey-type data and Web and social sentiment data.
“Our experience has been that it varies from organization to organization which types of data are most important,” Barnett explained. “But the feedback we’ve gotten is that all three are valuable.”
The Bottom Line
Yes, improving the buyer-supplier relationship improves customer satisfaction. But so what?
Well, Barnett said, doing so has a massive effect on a company’s bottom line. He used Six Sigma as a prime example. Six Sigma is a data-driven approach to process improvement, a strategy developed in the 80s and one that had a major impact on the manufacturing world — one worth billions of dollars, the CEO explained.
“If you can use data and technology to improve collaboration between buyers and suppliers, both parties can win. That’s what happened in Six Sigma, which drove up customer satisfaction by improving quality,” he said. “You reduce cycle time, you drive up extended enterprise productivity, the buyers and suppliers are more productive and there is more to share and more to win.”
Improving the buyer-supplier relationship and mitigating supply chain risk is all about making business processes more efficient, which reduces costs and improves customer satisfaction, which leads to higher revenues, Barnett continued.
It’s an interconnected process, one in which points of friction or dissatisfaction can lead to destructive breakdowns and financial trouble.
“Particularly in the B2B world, if there is debate about the quality of a service, they can slow down payment,” Barnett explained. “But if you’re sharing SLAs [service-level agreements], confirming that it is on track and doing it in less time, then the payment process improves.”
Clearly, the buyer-supplier relationship is complicated and multifaceted. It’s unsurprising, then, that it would take sophisticated data analytics to understand that relationship and, ultimately, help businesses improve it. Barnett explained that while ClientLoyalty is still in the early stages of developing this platform, it can, in many ways, be considered a “breakthrough” that operates in the space between customer relationship management and supplier relationship management.
“This is an exciting area for the business you’re in and for the purchasing departments and supplier relationship departments that have struggled for years or decades to do things better,” the CEO said. “Now, there’s a breakthrough to really be able to do that.”