Harvard Business Review recently published an article, “To Build Resilience, CEOs Need to Become Supply-Chain Experts”. They noted the fact that companies whose leaders had supply chain experience took a more proactive approach to addressing potential supply-chain challenges, and in leveraging the supply-chain function to generate new business opportunities. In this article, we wanted to discuss one aspect of supply chain that is often not given enough attention – building strategic relationships and shared value with direct spend suppliers.
Suppliers are now crucial strategic partners that support product innovation, efficient supply chains, and overall competitiveness. They are no longer just vendors of goods and services. Treating suppliers as essential partners in the field of direct spend management—almost like customers—can be a key component of a successful company strategy. We remind why suppliers are critical for supply chain success and what CEOs and business leaders can do to improve supplier relationships.
Four key reasons why suppliers are critical for managing direct spend
Innovation and Product Development: Suppliers often have deep knowledge about the materials, processes, and industry trends that can drive innovation. When companies collaborate closely with suppliers, they can co-develop new products and improve existing processes, leading to competitive advantages in terms of product differentiation.
Supply Chain Knowledge and Risk Mitigation: Suppliers have a direct impact on direct spend with raw material and transportation costs as two big drivers of operating margins. In order to effectively manage risks in the current unstable global marketplaces, many suppliers have a thorough understanding of their own suppliers as well as supply chain bottlenecks that extend past the top tier of suppliers.
Access to Unique Process and Asset Capabilities: Some suppliers offer unique skills, technologies, or processes that are not available in-house or through other sources. For instance, suppliers may have strong Vendor Management process expertise that will help reduce working capital. Or they may have expertise in manufacturing processes and have flexible capacity to allow contract manufacturing for new product introduction.
Market Intelligence: Suppliers often have access to valuable business and supply market intelligence, which can inform a company’s strategy especially in the area of direct spend. For instance, suppliers have early visibility into commodity pricing and demand trends for metals across multiple customers which may identify potential supply constraints.
Checklist for business leaders to build supplier relationships and enable adaptive supply chains
By shifting direct spend management from a transactional function to a strategic partnership with suppliers, companies can build more resilient, innovative, and adaptive. Below is a checklist of key actions to follow:
Dedicate Time to Supplier Relationships
Reallocate time and prioritize direct engagement with key suppliers. CEOs typically spend only a small fraction of their time on supplier relationships, but this should be increased to reflect the importance of these strategic partners.
Initiate One-on-One Conversations with Supplier CEOs
Establish regular, direct communication channels with the CEOs of key suppliers. This top-level engagement demonstrates commitment and builds trust, ensuring alignment on strategic goals.
Work with Direct Spend Suppliers to Develop Mutually Beneficial Opportunities
Collaborate with direct suppliers to identify opportunities for shared value. This proactive approach can create win-win scenarios, fostering long-term loyalty and partnership. An example of this is Vendor Management Inventory and Capacity Collaboration for contract manufacturing.
Make Strategic Commitments During Supply Chain Disruptions
During crises such as semiconductor shortages or other supply chain disruptions, make firm, long-term commitments to suppliers. Offering loyalty and support in difficult times strengthens the partnership and ensures reliable supply in the future. Long term forecast collaboration becomes a critical requirement for manufacturers and their direct suppliers to focus on to de-risk their supply chains.
Adopt a Holistic Direct Spend strategy
Move beyond isolated tactics and adopt a holistic, approach to direct spend that integrates sourcing, contract management, procurement and invoicing. This means involving procurement in the highest levels of strategic planning and decision-making.
Focus on Long-Term, Strategic Partnerships
Shift the focus from short-term cost savings to long-term value creation with suppliers. This may include developing shared roadmaps for product development, cost-saving innovations, and sustainability goals.
Embed Procurement into S&OP Processes
Make procurement a strategic function at the core of business operations, involving it in key decisions related to Sales and Operations Planning. Ensuring that collaborative forecasts, VMI and OTIF data is captured through execution platforms and utilized as part of S&OP and S&OE is critical.
Leverage Data and Digital Tools for Supply Chain Collaboration
Utilize technology platforms that provide process orchestration and community driven insights to gain deeper visibility into the entire supply chain. This can help identify potential disruptions early and improve decision-making capabilities, particularly in Purchase Order, Forecast, Inventory and Quality related processes.
Develop Resilience and Risk Mitigation Plans
Create resilient supply chains by working with suppliers to create backup plans in case of unforeseen circumstances. This could entail increasing manufacturing flexibility, expanding the pool of suppliers, and jointly funding supply chain innovation. Engage suppliers into your supply chain design and planning initiatives and provide scenarios that are win-win for you and your suppliers.
Case in Point: Global distributor gains improved invoice accuracy and faster payments as a result of PO Collaboration with their customer.
Implementing a Supply Chain Collaboration solution has transformed the way an industrial distributor of fasteners, hardware and miscellaneous supplies operates, addressing a critical pain point: the sluggish response to purchase orders (POs). Previously, the reliance on a manual, email-based system often left salespeople overwhelmed and slow to respond to POs, leading to missed opportunities and frustration for suppliers.
With the integration of CXML and the enhanced point-of-sale systems, this challenge has been tackled head-on. Now, salespeople have a clear expectation and streamlined process for responding to POs promptly. This newfound accountability not only accelerates response times but also significantly improves invoice match accuracy. By ensuring that POs are handled directly through the point-of-sale systems, salespeople can accurately align invoices with the corresponding orders, minimizing errors and discrepancies that once plagued the invoicing process. This dramatically improved financial accuracy and reduced revenue leakage.
Moreover, this solution offers substantial value for suppliers. The integrated system allows them to manage all facets of their procurement seamlessly, reducing manual effort and boosting overall efficiency. By fostering prompt responses and enhancing accuracy, the collaboration solution transforms procurement from a source of frustration into a streamlined, effective process for greater success in a competitive marketplace.
Nari Viswanathan is Sr. Director of Supply Chain Strategy at Coupa, where he manages the Go to Market strategies for areas of Supply Chain and Direct Spend. Nari Viswanathan is a six times SDCExec Supply Chain Pro to Know award winner. Over the past 20 years, Nari has held VP and Director of Product Management, Research and Marketing roles at various companies such as E2open, i2 Technologies and Aberdeen Group. He is a proven B2B marketer with expertise in content marketing, competitive intelligence, and positioning.
