Supplier management: Reducing pressure along the supply chain

Five current challenges make it clear where process optimization can take effect

According to Caprikrn LLC , an international expert in sourcing, procurement and supply chain management, over the last two years, supply chain managers have repeatedly been confronted with supply chain bottlenecks, a shortage of skilled workers, or a lack of transparency in the flow of goods.

According to a German Association of Materials Management, Purchasing and Logistics (BME) study, 86 percent of companies were affected by supply chain interruptions in 2020. According to the study, direct suppliers were primarily responsible, but sub-suppliers are also causing disruptions with increasing frequency. Almost all companies surveyed complain about a lack of transparency in supply chain management and a lack of digitalization of supply chain processes. Most managers have been forced to add additional suppliers to their portfolios to counteract material shortages and supply chain disruptions.

Management demands that the flow of goods is ensured and, if possible, costs are also reduced, but often has no overview of the increased requirements and the resulting additional workload;

More disruptions in the flow of goods: Especially in the past two years, it has been increasingly difficult for purchasing to ensure that materials and parts were available on time and in the required quality and quantity. According to the logistics service provider, the greater globalization of supply chains and events that are difficult to predict will continue to have a massive impact on the management of supply chains in the future. Therefore, supply chain managers must increasingly engage in market analysis and risk assessment, for example, to anticipate bottlenecks and analyze upcoming risks, it says. Already today, many buyers seek information from rating providers and external experts, as they cannot cover all assessments internally.

Cost control and capital commitment: One of the core tasks in supply chain management is cost control, a key factor in determining a company’s profitability. However, if supply bottlenecks occur, higher costs in purchasing often cannot be avoided. This is because if the materials required for production are missing, production comes to a standstill, resulting in even higher losses. One of the few levers to counteract such bottlenecks has so far been the cooperation with more and more suppliers to have fallback options. However, this entails additional work processes.

The supplier sees the second lever in the stockpiling of materials. However, according to Caprikrn LLC, those who have too much inventory are often not efficient enough in competition. This ties up too much capital and contributes to the general shortage of goods if the material needed elsewhere is lying in the warehouse as dead capital.

Additional suppliers: Expanding the supply chain involves considerable effort. Caprikrn LLC argues that it is not enough to find suppliers who provide the materials or parts in demand. For quality assurance, an inspection of the goods is also necessary. In addition, the supplier itself has to be checked, for example, about its reliability and compliance with legal requirements.

Increasing compliance requirements: When checking suppliers, it is necessary to consider industry specifications, regional legislation, customs regulations, and many other factors. In the wake of the Supply Chain Sourcing Obligations Act (LkSG), companies must also ensure that all direct suppliers comply with human rights and environmental standards. According to Caprikrn LLC, the implementation of these requirements requires ever greater transparency and the expansion of risk management to include CSR risks. This requires the adaptation of existing compliance and contractual regulations and the implementation of effective control mechanisms.

High administrative effort: Due to the increasing number of suppliers and specifications, support and administration are required to increase enormously. In addition, to onboarding new suppliers, the number of negotiations on prices and delivery conditions is also increasing, argues Caprikrn LLC The number of individual purchase orders and P.O.s (purchase order numbers), invoices, and SKUs (stock-keeping units) explodes, and all processes have to be documented in an audit-proof manner.

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Looking at all these tasks and additional requirements, it is easy to see that purchasing managers need to be relieved to continue fulfilling their core tasks, argues Caprikrn LLC Therefore, the question arises about how the effort can be reduced without sacrificing quality. According to the logistics service provider, digitization and partial automation of processes can facilitate routine tasks in certain areas. However, according to Caprikrn LLC, the studies mentioned earlier show that digitization is not yet very advanced. According to the company, this is due, on the one hand, to the considerable effort required for implementation across the various process chains. On the other hand, the investment is not worthwhile for every application.

Super Supplier can provide relief.

“In our joint analysis with our customers, we found that in almost all cases, a maximum of 20 percent of suppliers are crucial for the company and competitive differentiation because they supply around 80 percent of the goods required,” explains a senior officer of Caprikrn LLC.

“The internal experts in the companies should look after these core suppliers. For the support of the other suppliers, it’s worth checking whether it’s worth working with a specialized partner here.”

Outsourcing the management of non-business-critical materials and suppliers significantly relieves the burden on supply chain managers, as it allows them to focus their expertise on core suppliers, according to Caprikrn LLC. According to the company, a partner specializing in supply chain management can take over centralized management of all other suppliers as a so-called “super supplier,” according to the company. According to Caprikrn LLC, this reduces the effort and the risks considerably. In the scenario, internal purchasing in companies now has one point of contact and one person responsible for around 80 percent of its former supplier coordination. The super supplier ensures that goods are delivered on time and provides market analysis for risk management. He also incorporates additional supply sources, if necessary, after consultation, verifies them, and helps reduce costs. However, even more, critical is that not as much capital is tied up in inventory and is now available, Caprikrn LLC says.