Top 5 Myths About Supply Chain Management

Posted by Helen Atkinson on Fri, Mar 07, 2014

Supply chain globeIt’s no longer enough to simply manage suppliers. Without a strong handle on everything that’s happening in your company’s supply chain, you will miss big savings opportunities.

In a recovering economy, procurement managers need to know more about how their organization's total supply chain works than ever before. As business starts to fire on all cylinders again, it’s clear things have changed. Not only are we experiencing the truly global, challengingly mercurial commercial landscape everyone talked about before the bust, but the need to keep a close eye on exactly what’s going on day to day has shattered old supply chain and procurement best practices — even from just a few years ago. But now, new spend analytics solutions offer impressive capabilities that allow supply chain managers both deep and wide views of their spend. With these tools, it’s possible to shine a spotlight on problem areas that were previously hidden in siloed expense reports, forgotten contracts, and operations with little or no oversight.

Here are the five supply chain myths that are costing your company millions:

Myth #1: Once I get my supply chain network organized, with trusted suppliers connected to the right logistics providers and reliable vendors committed to solid contracts, I should trust that my operations will keep running smoothly.

Fact: Supply chains are constantly subject to both new opportunities and adverse changes, even with a constant and thoroughly reliable set of business partners. Weather, politics, fluctuations in market demand, and many other factors mean supply chain management is a constant juggling act. It’s important to constantly monitor risk factors for even the most reliable manufacturers and service providers.

What if political upheaval in Vietnam shuts factories down, drastically changing the availability of goods you rely on? Or a sudden fluctuation in exchange rates drives the price sky high? A good spend analytics program can help you quickly run the numbers on switching to a similar supplier next door in Laos, or going further afield, to Mexico, for example. If a typhoon closes the port of Hong Kong, spend analytics can give you an instant view of which ocean carriers with whom you’re already contracted include the option of trans-shipment through Singapore.

Myth #2: As long as my service providers and suppliers are hitting the budgets laid out in their contracts, we're in good shape.

Fact: It's important to monitor performance in other terms, too — quality, response times, reliability, and punctuality should all be part of your contracts, and if a supplier is dropping the ball on any of them, you’re losing money and missing out on an opportunity for savings. Plus, the overall bill from any one supplier might look good, but are you getting charged too much in one area of service, balanced out by lower costs in another? For example, is your IT provider passing on to you the benefits of the rapidly falling cost of cloud-based data storage, or jacking up the price of online support to compensate? Is a law firm farming out critical legal work to associates who charge less per hour but take five hours over something that would be better handled by a partner in one? These are the questions you should be asking yourself, and you can now — finally — find the answers.

Myth #3: We have a computer system that manages all of our expenses at the accounts payable level, and I’ll know if there’s a problem.

Fact: Most business management software systems don’t offer the flexibility and level of detail you really need when you’re managing procurement choices and issues. It’s easy to get lost in a vast sea of data and be constrained by a predetermined set of KPIs that don’t actually give you a useful picture of what most concerns you. Are you buying from suppliers in a country with a poor human rights record that’s going to have an impact on public relations and therefore sales? How is the fluctuating price of oil going to drive up your freight charges? How much are returns on faulty goods costing you? Are you paying too much for office supplies from six different vendors, where you’d get a discount if you went with just one? Often, much valuable information is trapped in separate systems, making it difficult or impossible to blend data usefully.

Myth #4: There’s no way to know how major changes to our supply chain will affect the company’s bottom line.

Fact: Some new spend analytics solutions include what-if scenarios in their software that allow you to “play” around with big decisions. You can simulate trying out new suppliers, routes, prices, and more and actually see the domino effect each change — or degree of change — will have on the bottom line. You can, for instance, simulate new contract terms to see the best choice for short- and long-term savings.

You should constantly be looking for ways to improve your procurement and supply chain networks in order to keep up with a constantly changing commercial environment.

Myth #5: My potential for impact on the bottom line is minimal. I don't have a seat at the table as far as upper management is concerned, and I never will.

Fact: With the right spend analytics tools, you can dazzle the board with agile — and often simple — ways to save money, improve efficiency, and drive a better customer experience. Now more than ever, technology offers the opportunity to drill down into exactly the areas where problems need fixing, savings could be made, or better outcomes achieved. Equipped with smart software tools, you don’t need to feel like you’re trying to drink from a data fire hose. Solutions can proactively flag issues according to the measures that are unique to your concerns, including aberrations and deflections from agreements and contract terms that don’t show up in other departments’ reports. The accounts payable department might not care whether the key supplier of a major item or service is meeting quality-control standards, but you do.

Want to learn more about how spend analytics solutions can make a big impact on your company’s bottom line? Check out our latest white paper.


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Topics: Big Data, Analytics, Supply Chain & Operations