Smart sourcing starts with good information

Poor data quality leads to poor decision-making. While true for all business intelligence solutions, it's especially the case with supplier relationship management (SRM). The strategic sourcing decisions supported by your SRM solution can save millions and these potential cost savings are real.

McKinsey & Co states that an SRM solution can save a company approximately 5% to 15% - or greater - of its total spend over three years. Yet only 50% to 60% of companies in the US use even slightly advanced supply chain management techniques. Why?

One reason could be the immense data challenge that must be overcome. Procurement groups often work independently across multiple business units using disparate ERP, e-procurement and various legacy systems. The data needed to support strategic sourcing processes must be collected, cleansed and made available for reporting and analysis. Although this is no small task, the rewards can be substantial and immediate.

An SRM solution should allow you to identify areas where you can leverage your purchasing clout to consolidate your supply base and reduce your overall costs. Through a better understanding of your procurement spend data, you will know how much you are buying, from whom, at what price and with what frequency. Obviously, high-value sourcing and negotiating requires complete and accurate data.

Once all the relevant data has been collected, data quality must be addressed to enable strategic sourcing activities. Organising and reconciling information becomes a primary task when supplier names show up multiple times in different formats or the same items are described differently by various buyers.

An SRM solution should assess supplier records, ensuring all supplier names are entered correctly and classified within the correct company structure. This process standardises all names and addresses, corrects inconsistencies and missing information, and links duplicate records.

One option worth considering is an SRM solution that classifies items using the descriptive text within the purchase order line-item detail and item master descriptions. Another option is classifying your purchases using a global code standard or a custom structure - ideal if you already have your own proprietary coding systems. When information on your purchased materials and services is organised, you are equipped for better reporting and online analysis.

An SRM solution should be able to incorporate additional supplier data from third-party sources, such as business demographic information, financial assessment scores, parent/child linkages and quality assurance certifications.

Why is this important? Without realising it, you could be spending millions annually with different subsidiaries of one parent company. When armed with accurate information, you can better exploit your total buying power to negotiate more favourable terms with that supplier.

Even the best SRM solution in the world is a waste of time and money if it takes years to recoup its implementation costs. Furthermore, a SRM solution without analytics is like the proverbial canoe without a paddle - you've got a sound vehicle, but no way to move it forward, particularly against a growing tide of data.

With an ideal SRM solution, you can analyse data via a point-and-click, Web-based interface, providing easy procurement scoring and strategic sourcing. Different individuals within a company are able to examine the data in ways appropriate to their specific responsibilities. A chief procurement officer, for example, would see performance measures that offer a company-wide view of procurement activities, whereas a commodity manager might look only at day-to-day analyses to flag potential problems.

True SRM not only accelerates payback, but its analytics also allow you to forecast what you'll be purchasing from whom over, say, the next two years. Using this knowledge - fully confident that it is accurate - you can negotiate long-term contracts that produce substantial savings. You can also model optimal sourcing strategies - key to minimising supply chain disruptions and maximising your relationship with your most crucial suppliers.

Effective SRM should be an indispensable component of your company's overall business intelligence strategy. When you can export data to financial systems, performance scorecards and activity-based management programs, you go a long way toward satisfying customers and investors alike. Indeed, an SRM solution can be your best approach for anticipating and eliminating supplier interruptions that could undermine sales, profit and - worse yet - customer satisfaction

After all, that's what it's really all about: your customers. Time savings, purchase price reductions and inventory efficiencies are vitally important. But strategic sourcing is the first step in meeting customer demand in a timely, efficient manner. And in most any industry, customer needs are the ultimate driver of your fulfilment strategies.