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A new report from Forrester Consulting shines a spotlight on poor supplier collaboration and effectively blames a lack of digitization and too much focus on costs with hurting these alliances. In fact, 77% of companies full well admit that cost dominates their supplier selection process for most sourcing projects. Another 80% of companies say they definitely need to accelerate their procurement digitization efforts.
These and other findings surfaced when cloud-based spend management platform Ivalua paired up with Forrester to learn more about the missing links in the supplier collaboration chain, and to offer up some strategies for fixing these problems.
Collaborating to Win
When doing the research for “Collaborate to Win – Unlocking Supplier Innovation & Value,” Forrester found that improving supplier collaboration is a priority for 77% of respondents, followed by improving CSR (41%), increasing margins (38%) and accelerating the pace of innovation (36%).
The majority of respondents say they have improved collaboration with most strategic suppliers (90%) and their broader supply base (91%) over the last two years. However, there are still a number of areas for improvement, with geographic location dictating the nature of those challenges. For example:
- 50% of German businesses had no processes to collaborate with strategic suppliers, compared to 45% in the U.S. and a third (33%) in the U.K.
- 48% of U.S. businesses and 44% of German businesses had no processes to collaborate with the broader supply base, compared to a third (33%) of U.K. businesses.
- Just 38% of German business leaders believe that procurement is seen as a key business partner which contributes significant value, compared to 86% in the U.S. and 82% in the U.K.
“Most procurement departments are taking steps to improve supplier collaboration, but supplier selection is still dominated by cost, and businesses are struggling to work strategically with suppliers,” explained Ivalua’s Alex Saric, in a press release. “As firms increasingly rely on suppliers to help them keep up with the growing pace of innovation and to adapt during crises such as COVID-19, they need be building stronger relationships. If organizations don’t establish themselves as a customer of choice now, they will be at a significant competitive disadvantage as in-demand suppliers pick and choose who they work with and prioritize.”
By the Numbers
The study also surveyed suppliers, of which 88% stated that visibility into payments and the timeliness of those payments were the main factors likely to increase their willingness to collaborate and share innovations with a specific customer. Digitization is seen by many as being “essential” to enabling that level of payment efficiency, transparency, and control.
"It's clear that companies need to digitize procurement processes to enable deeper collaboration across more of their supply base,” Saric states. “Doing so will enable them to better unlock innovation from suppliers, ensure supply continuity, and better address other strategic priorities.”
Other key report findings include:
- Most procurement professionals believe that their colleagues consider them to be a key business partner contributing significant strategic value (67%), especially in manufacturing (77%).
- Procurement leads the way for effective collaboration with suppliers (85%) and collaborates effectively with business units internally. However, there is room for improvement.
- Respondents rate physical and time zone gaps as the top obstacle to collaboration with business units (50%) and strategic suppliers (43%).
- Lack of mechanisms to collaborate well is the top barrier to collaboration with the wider supply base (42%).
3 Steps to Take Right Now
Recognizing that COVID has battered businesses and economies around the globe, Forrester offers these recommendations to companies that want to start improving their supplier collaboration right now:
- Set improved collaboration as one of your team’s top priorities. Devote more management attention to the parts of your team’s function that most matter to customers — such as building better products and ensuring all suppliers are ethical and reliable. “Commit to increasing the quality and quantity of collaboration that supports these goals,” it says, “including product co-innovation using agile or iterative methods, and supplier development programs to reduce risk and improve performance.”
- Define KPIs that will measure outcomes, not merely activity. “Measure the business benefits of improved collaboration, not merely the fact that it occurred,” Forrester says. For instance, have you reduced the time-to-market of new products? Did those products generate the expected incremental revenue? “Survey suppliers to check that your efforts to be a better customer produced the desired result.”
- Use technology to support the cause. “You need modern software that is easy for procurement to use and that facilitates collaboration with suppliers,” Forrester points out, noting that exchange and processing of formal documents such as purchase orders and invoices should be fully digital. “This is table stakes if you want suppliers to collaborate with you.”
