Tom Derry, CEO of the Institute for Supply Management (ISM), explores how supplier relationship management remains crucial in the ever-evolving digital landscape of supply chain.
The key to any successful supply chain function is a robust supply network. As technology continues to redefine the very nature of supply chain processes, this has dramatically changed the supplier relationship management (SRM) conversation. Businesses the world over are investing into their supply chains and implementing innovative technologies that drive efficiency, reduce costs and help their businesses unlock the next level of strategic growth, but what does this do to that supplier network? “I’d say that we are in the very early stages of a shift in the landscape,” says Tom Derry, CEO of Institute for Supply Management (ISM). “We’re moving into an era where innovation and collaboration between the OEMs and the suppliers is more recognised as a source of value and an opportunity for value capture for both sides of the equation.”
ISM is an independent, not-for-profit organisation that works with over 50,000 supply management professionals in more than 100 countries who are responsible for close to US$1trn in corporate supply chain procurement spend annually. Its mission statement is simple; to advance the practice of supply management, drive value and competitive advantage, and contribute to a prosperous, sustainable world. For Derry, the supply chain function and effective SRM is proving to be the key enablers for greater competitive advantage. This is something he feels has coincided with a shift in the perspective as to what supply chain and procurement can really mean to a business. He points to Diageo and how its market leading scotch brands are produced in their own individual locations, but its biggest market is the emerging middle-class market in Southeast Asia and China. “Its distribution site is in Singapore and you can have your bottles personalised. This level of customisation in the last mile of supply chains is where companies are now competing for market growth,” he says. “There’s also Ford Motor Company and its implementation of Microsoft Sync. Its CFO, Bob Shanks, publicly praised the procurement team for establishing that relationship. Businesses are / business is? now realising that the supply chain is more than an enabler. The agility and resiliency required to be competitive in today’s global macroeconomy is a strategic capability that they all need to have.”
The impact of this changing world on the very function of the supply chain is plain to see, as companies seek a more agile and resilient supply chain, they need to re-examine their entire operation in order to better understand how they can achieve this and grow. Derry points to an industry-wide belief that the world is moving into an era of demand-driven supply chain or a customer-centric supply chain. This, he feels, is born out of the practical experiences of companies. “Given the current tariff dispute, for instance, between the United States and China, we're moving into an era where if the previous couple of decades were characterised by building a globally extended supply chain that was linear, we're likely moving into an era where geopolitical risk will mandate that--and economics, too, tariffs and taxes - that supply chains will break up into regional supply chains that will be both closer to suppliers and closer to end customers, which is actually a natural economic phenomenon,” he says. “So, we're moving into an era where I think we'll see supply chains cluster around key geographies. We will see a fragmentation and redistribution of supply chain because of underlying factors.”
As supply chains start to cluster in order to be closer to their customers and end markets, this will radically change the relationship between a company and its supplier base. Derry looks to a supplier in the automotive industry that is involved in the manufacture of dipsticks, a very low-tech and low margin product. This particular supplier looked at injection moulding technology used in the manufacturing process and discovered it could also be used in the manufacture of a defibrillator. “Suddenly, they are now an automotive supplier and are now a supplier in the healthcare industry. This was all achieved through a collaboration between engineering teams at a medical device company and the original automotive supplier,” says Derry. “So now they’ve diversified their revenue, reduced their risk and created a higher margin product. It's a great scenario where they are making higher margins as a supplier while the med-device firm has got a higher quality product because they were unhappy with their traditional suppliers in the med-device space.”
“It's just one example, but it's a very powerful one, of how their SRM - particularly as it's expressed in collaboration - is critically important.”
With the digitisation of industry, we can point to a number of technologies that continue to dominate the conversation, but Derry points to one that may not immediately spring to mind; Twitter. Visibility in the supply chain is greater than it has ever been before as businesses look to have visibility into their first tiers of their supply base. But as some don’t have visibility beyond that initial tier, what can the likes of Twitter enable for businesses? “Say a fire happens and a worker tweets that they are off home because of the fire. That tweet will be picked up by all kinds of risk management solutions that are in operation for supply chain teams all over the world,” says Derry. “The supply chain teams then have instant knowledge that that's a supplier of theirs and can immediately enact their contingency plan or business continuity plan. In this day and age, the companies that prevail are the ones that act fast on intelligence and have plans in place in the event of those contingencies.”
“There's a number of firms today who are providing risk management solutions in the supply chain, who take advantage of that capability to make real-time information available to their customers. And that's significant stride forward.”
Technology will continue to redefine the supply chain function and the role of the supply chain professional which in turn will continue to redefine SRM. Automation and robotics will become more commonplace within this space, with SRM and the data capture surrounding it being identified as a key area where this will happen. Derry admits as much, but he also understands that for an effective relationship there will always be the need for human interaction. “You may have technology with red flashing indicator lights that says the supplier is a financial risk, or they're changing the lead times that we need to investigate, or they're having quality issues. That's just information,” he says.
“Now what's required is somebody going over to that supplier and sitting down and saying, "This is the data we have. Can you help me understand it? Can you explain it? What's your mitigation plan?" And that takes a strategic, face-to-face conversation to understand what is my actual risk. Now technology can tell me I might have a problem, but I need to have a face-to-face conversation and that’s never really going to change.”