Strengthening The Supply Chain Through Supplier Collaboration

Aasif Khan

Supplier collaboration means working with decision-makers at a supplier to determine improvements that can have a measurable, positive financial impact for both organizations. An example of supplier collaboration would be jointly redesigning a product that a supplier custom manufactures for your organization.

The supplier collaboration journey typically begins with transactions or practices and gradually deepens with added visibility and collaboration between both parties, including scorecards, inventory, forecasts, and demand. As companies progress on the journey with selected strategic suppliers, transactional practices mature into relationships with joint value.

Supply chain inefficiencies are the most common operational challenge that often leads to stock-outs and delayed procurement cycles. Greater collaboration with suppliers is one of the principal methods of addressing these inefficiencies. Supplier collaboration implies a high level of transparency, visibility, real-time sharing of business-critical knowledge, and superior synchronizing of processes and plans between all stakeholders in the supply chain.

Key benefits of collaboration

key benefits of supplier collaboration
  • Improves margins on finished goods decisions
  • Improves on-time delivery rates and in-stocks as suppliers are better positioned to meet demand
  • Allows faster reaction to demand and capacity changes
  • Lowers cost of goods sold through collaborative issuance of capacity projections and commitments
  • Improves forecast planning accuracy
  • Improves use of excess inventory

The process flow

process flow of supplier collaboration

Stakeholder demands for transparency and responsibility along the supply chain are on the rise. Critical resources are becoming scarce while consumers are becoming more informed and demanding. Companies that effectively collaborate with suppliers could potentially reap handsome benefits in the form of lower risks, reduced costs, and new revenue growth.

According to Deloitte’s Four Steps to Effective Supplier Collaboration model, to establish an effective supplier collaboration structure, there are four action plans in addition to the business processes described above. The first is to provide clarity on the KPIs and targets, the second is to share the strategy and the critical points with the suppliers, the third is to evaluate and classify the suppliers, and the last is to implement the plan.

  1. Set clear expectations: Be clear and specific about the goals, incentives, and penalties of the effort with a focus on shared cost savings, revenue growth, and risk reduction.
  1. Make it worthwhile: Focus on a goal that is sizable enough to warrant the time and attention from both buyer and supplier.
  1. Build trust: Conduct in-person meetings to promote a collaborative and trusting work environment.
  1. Make a clear commitment: Formulate an explicit agreement with clear goals, agreed-upon methods for measurement and verification of results, and methods for capturing shared savings.
  1. Instill accountability: Create clear ownership from both parties, and conduct regular progress updates.
  1. Draw upon leading practices: Learn from others who have been down this road, and draw from leading practices.

Requirements

In order for customers to collaborate with their suppliers effectively, the collaboration process structure is divided into three main parts and business processes: plan, buy & make, invoice & payment.

necessary supplier collaboration processes

In the plan process, the forecast is shared with the supplier. The supplier must share inventory information. The customer shares demand plans, shipment plans, and inventory information with suppliers.

In the buy & make process, the customer shares information about order placements, inquiries, and receipts, and approval information is obtained from the supplier. In addition, the customer reports the amount of consignment stock to the supplier and shares rolling delivery schedule information, and the supplier is expected to create compatible plans. Order placements are made for the components in the contract/subcontract process, then information, inventory registration information, and demand tracking for deliveries are shared with the suppliers. The supplier provides the consumption of component information. For the quality-control process, a structure is created to store quality notifications and communications and respond to quality cases with the supplier. Test results may be requested by the customer, and the supplier is obliged to share them.

Lastly, payment information, invoicing information and returns should be shared, in the invoice & payment process. The flow of information feeds these three structures and the requirements of the platform supplier’s collaboration structure.

The main goal of this process collaboration is to remove buffer time, improve information transparency, and improve operational efficiency.

Key performance indicators

Demand rate from framework contracts and catalogs
Number of contacts with supplier representatives (yearly/quarterly)
Number of supplier visits (yearly/quarterly)
Total electronic invoice count (% of total invoice count)
Total catalog PO count (% of total PO count)
Total electronic PO count (% of total PO count)
Automation rate PO (no touch, one touch, etc.)
Automation rate PO confirmation
Purchase volume via Internet tenders and online auctions
Invoice approval cycle time (in days)
Delivery schedule adherence (DSA) of all deliveries

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Aasif Khan

About Aasif Khan

Aasif Khan is a Business Transformation Services(BTS) Principal at SAP. In this role, he is focused on delivering services, such as advisory and architecture advice, to our customers and internal stakeholders. Aasif brings in a strong supply chain consulting and Automotive industry background. His focused area of expertise include Business Strategy, Digital Roadmaps, Design Thinking, Business Transformation Management (BTM²), and Architectural Services.