Introduction
A host of new Internet-based solutions exist today, all of them promising business processes improvements and methods for reducing costs. In an economy that demands bare bones spending, company decision makers must sort through these Internet solutions to determine which of them will deliver a true, measurable ROI.
Manufacturing and distribution companies rely heavily on their ability to ship product and meet commitments to customers. Yet though the supply chain is the lifeline of their business, most purchasing departments are severely handicapped in their efforts to streamline supply chain execution.
A large part the breakdown occurs in the procurement process, when buyers purchase direct materials from suppliers to maintain adequate inventory levels. The cause of the breakdown: buyers using manual processes to manage relationships with their suppliers.
Online SRM automates these manual processes. The following is an outline of the methodology behind the use of Internet-driven SRM and six areas that are measurably improved by the use of this online technology.
This
is Part One of a three-part article.
Part
Two describes the advantages gained by implementing an online SRM system.
Part
Three discusses other points to consider when choosing an online SRM system.
Supplier Relationship Management
SRM can be defined as all of the interactions and business processes that take place between buyers and their suppliers. For the purposes of this discussion, goods being purchased are direct materials for use in manufacturing environments such as New Product Development (NPD), Production, and OEM/Distribution.
Examples of SRM activities may be basic transactions, collaboration and exception management, history reporting, analytics, and multi-site aggregation. These activities are examined more closely in the inverted triangle' discussion below.
Supply
Data: the Importance of Analytics
As
a manufacturing company produces goods, its supply chain rolls along. Transactions
take place between buyers and suppliers, and direct materials are continuously
procured. Time goes on and these transactions, often manual and time-consuming,
become a part of every day activity. Is the status quo minimizing supply costs?
With no tools in place to help analyze supply data, this question is not easily
answered.
Buyers who focus on transactional details have little time left to analyze the big picture. Important data is unknown: What materials are being purchased? In what quantities? From which suppliers? How do supplier costs compare? Are delivery deadlines being met? How often are shipments being expedited? Is the company receiving the best contract terms possible?
It is this kind of information that helps buyers and commodity managers to determine strategies that directly impact the bottom line. Armed with supply data, they are able to negotiate better contract terms and manage inventory more effectively reducing costs across the organization.
Online
SRM: Enabling a Strategic Approach
An
Online SRM system provides this important supply data. The best way to outline
this point is to refer to the inverted triangle' diagram below.
Figure
1.
The 5 levels of SRM, using an Online SRM system Higher-level
activities
are more strategic and have a greater impact on a company's P&L
Transaction Automation
This is the lowest and most tactical level of SRM. The focus here is on originating transactions, such as RFQs, POs, ASNs and invoices. Tactical buyers are responsible for creating these documents, delivering them to appropriate parties, and confirming their receipt.
Online
Collaboration
The
second level up is online collaboration. Before or after a transaction (e.g.:
PO, RFQ, ASN) has been sent, buyers and suppliers often have further conversations.
Examples include inquiries and negotiations, collaborative problem solving,
change notification and management, and status updates.
Management
by Exception (SCEM)
The
third level up is management by exception. Tactical buyers are responsible for
ensuring that ongoing or open supply transactions are completed as planned.
Quote requests, purchase orders and delivery confirmations that fall behind
their scheduled due dates can throw off entire production schedules. Detecting
exceptions and resolving them early is essential, but can also be time consuming
if buyers are forced to scrutinize each transaction to make sure that it's on
track.
Data
Mining and Reporting
Next
is data mining and reporting. To gather supply data, buyers need to be able
to search the database and create transaction histories, supplier performance,
and spend analysis reports. It is this kind of data that enables analytics.
Analytics
At
the highest level are the analytics-related SRM activities. Here, buyers and
suppliers use decision support tools from aggregate and specific data gathered
at the lower levels to make future choices based on past experience.
As represented by the size of each section of the triangle, an Online SRM system reduces the amount of time spent on transactional details and allows users to focus on more strategic activities. This is explained further in the next section, which describes six advantages gained by implementing an online SRM system.
This
concludes Part One of a three-part article.
Part
Two describes the advantages gained by implementing an online SRM system.
Part
Three discusses other points to consider when choosing an online SRM system.
About
the Author
Sunil
Pande, with over 20 years of experience in the high tech industry, is a co-founder
and President of Entomo, Inc. He has conceived, developed and brought to market
integrated Supply Chain/ERP products for "to-order" manufacturing, an Offline
Transaction Processing (OFTP) product, network management, and videoconferencing
products. Mr. Pande holds a MS in Computer Science from the University of Oregon
and a BS/MS in Computer Engineering from BITS, Pilani, India.
About
Entomo, Inc.
Entomo,
Inc. offers Online SRM and strategic sourcing applications that electronically
link manufacturers with their direct materials supply chain. Its Web-based application,
Entomo SmartHub/SRM, delivers transaction automation, online collaboration,
exception management, supplier performance measurement, and supply chain analytics.
Advanced capabilities support aggregation of inventory and purchasing data from
multiple sites delivering cross-plant visibility, consolidated sourcing, centralized
commodity management, and inventory sharing. For additional information, please
visit www.entomo.com or
call 1.877.936.8666