With changing market dynamics due to the COVID-19 pandemic, organizations must re-organize, adapt and respond quickly to new challenges. In between the pre-COVID and post-COVID period, one of the key factors that will play a significant role to ensure business competitiveness and sustainability is Supplier Relationship Management. Suppliers are no longer considered to be transactional partners but have emerged as the key business partners during this pandemic. According to Forrester’s report, new label for buy side applications is Supplier Value Management (SVM). SVM defines the importance and emergence of suppliers as one of the pillars for business development and sustainability.
Understanding the importance of SVM
Ongoing COVID-19 pandemic is an eye-opener for many organizations who had failed to plan for future and were operating with traditional business methods. One of the major challenges observed during this pandemic was complete disruption of supply chain network. Some key issues aggravating and hampering business operations during this period are:
Delivery & Logistics: Delivery of goods via rail, road and ocean continues to remain affected during this pandemic and it will take some time before they return to operate at full capacity. Sudden delays and cancellations in delivery of goods due to various movement restrictions imposed by governments across the world led to scarcity of supplies and business essentials. Non-availability of these supplies has led to suppliers asking for a premium value to cater to these requirements.
Geopolitical Risks: Recent geopolitical issues as well as trade war around the world has led to strained relations between nations, affecting organizations globally. Suppliers with manufacturing facilities operating from such geographies must withstand risks arising due these geopolitical factors affecting global supply chain.
Dependency: Organizations relying on a handful of suppliers for fulfillment of requirements were affected greatly and experienced tough times during the pandemic to sustain their operations. Inadequate inventory planning and scheduling of supplies elevated impact on business operations. Some organizations were forced to shut down operations as they could not keep up to the challenges and reduced cashflows during the pandemic.
While COVID-19 has acted as a catalyst for organizations to re-imagine and re-invent their procurement value chains, some organizations were better prepared to mitigate and respond to the disruption compared to others who have barely managed to sustain their business operations. Organizations, who have gauged the importance of Supplier Value management coupled with meticulous business continuity planning, have managed to sail through these turbulent times.
Let us look at some of the key factors organizations need to embrace to sustain any such future disruptions:
Digitization: Organizations, post-COVID, need to digitize their procurement value chain to maintain an upper hand when it comes to their competitors. One of the key factors that will help organizations to counter and sustain such disruption in future is through transformation to digital supply network. Organizations can collaborate effectively with suppliers through digital supplier network. Modern supplier management systems have the capability to manage supplier information like global supplier presence, company information, banking details and certifications helping organizations to have a clear visibility of the supplier. Suppliers can digitally raise invoices, raise queries and issue credit notes upgrading from traditional paper-based offline processes. Moreover, organizations equipped with supplier performance management systems can manage and evaluate suppliers based on compliance, contractual terms as well as pre-defined key performance indicators (KPIs).
Sustainable Collaboration: Organizations need to collaborate and work with suppliers to understand their ability to fulfill supply requirements, which plays a pivotal role in maintaining sustainability. They need to keep suppliers engaged about upcoming changes in requirements to ensure optimum capacity planning. It would be helpful for organizations to understand suppliers’ manufacturing status, inventory and warehousing capabilities, and orders fulfillment status to make informed decisions. Constant collaboration with suppliers is essential to understand and mitigate risks arising due to any geopolitical issues.
Expansion of Supplier Network: Organizations can no longer afford to keep all their eggs in one basket. It will be important to establish new relationships with alternate suppliers to maintain sustainability of procurement value chain. Suppliers from various geographies can be included as part of supply network to ensure minimum impact on operations and continue with supplies from alternate supplier instead of mainstream supplier. With disruption of supplies and movement restrictions during the pandemic, organizations preferred to utilize alternate local suppliers to maintain minimum operable capacity.
To sum up, organizations need to adopt and acknowledge Digital Supplier Value Management as the new normal for procurement value chain to maintain sustainability due to any unforeseen future disruptions. Do let us know your views about SVM and its impact in shaping the future of procurement value chain.