Thanks to the rise of globalization and outsourcing, supply chains have grown so large that they’ve become practically ungovernable through traditional means alone. Small companies often deal with hundreds of suppliers from one-time vendors to regular service providers, while large enterprises routinely handle supplier portfolios numbering in the tens of thousands. A lot don’t even know exactly how many suppliers they have.
Even supply chains for single product lines can become dizzyingly complex. To make matters worse, the level of complexity is often only revealed following a crisis. Remember, for example, the horse meat scandal, in which the scale and complexity of Europe’s food supply chains were revealed when the authorities spent weeks trying to track down the origins of the horse meat being passed off as beef in various UK supermarkets.
#1. Background checks are taking up too much time
When a product or service doesn’t live up to a customer’s expectations, the organisation that sold it to them is always the first to get the blame, no matter how far back along the supply chain the problem occurred. Being held accountable for the brunt of any reputational, financial, or legal damage, it’s imperative that organisations carry out extensive background checks before signing any new supplier contracts. With highly regulated industries, such as healthcare and finance, these are even more important. Background checks include Know Your Customer/Supplier (KYC/KYS), Anti-Money Laundering (AML), Corporate Social Responsibility (CSR), and credit checks to name a few.
Background checks must be carried out for all suppliers, no matter how small they are. Even a minor long-tail supplier can end up being responsible for a disaster. For example, US retailer Target found out the hard way when hackers stole millions of records by breaking in via an HVAC company that had access to their point-of-sale systems. At the time, it was the biggest ever data breach to ever hit the headlines. To reduce risk without spending a disproportionate amount of time on evaluating long-tail suppliers, buyers need to automate background checks and, in doing so, reduce instances of human error and conflicting information.
#2. There’s a lack of interconnectivity between departments
Information silos are among the most common barriers to business growth. When departments are unable to communicate efficiently with one another, the ability to track inventory across multiple warehouses and stores becomes exponentially more difficult. This occurs when staff need to update multiple internal systems to onboard and keep track of suppliers. Manual data entry and the exchange of information through arcane business processes ends up leading to a lack of consistency and a greatly increased chance of error.
In an ideal world, onboarding and maintaining suppliers should be a single cohesive process whereby the collection and management of supply chain information is automated. With one platform to manage all long-tail suppliers, companies can retain complete visibility into supply chains of any complexity while freeing up time to focus on improving relationships with major strategic suppliers. If information silos are hindering your ability to manage your supply chain efficiency, then it’s time to reduce dependence on manual processes and rethink business culture to put an emphasis on interdepartmental cooperation.
#3. It’s taking as long to onboard smaller suppliers as major ones
If we apply the 80/20 rule, also known as the Pareto principle, to supply chain management, then 80% of your suppliers are long-tail ones which individually have minor impacts on growth. Therefore, it’s counterproductive to spend as much time onboarding and maintaining smaller suppliers as strategic ones. Yet every supplier still needs correctly managing for the sake of compliance and sustainability. At the same time, unnecessarily lengthy onboarding processes are sure to put off smaller suppliers, thus making your company less attractive to do business with.
Naturally, strategic suppliers deserve more attention from a relationship-building standpoint. After all, as the 80/20 rules suggests, 80% of business outcomes stem from only 20% of the supply chain. Automating supply chain relationship management for long-tail suppliers helps companies reduce risk originating from smaller suppliers while freeing up time for procurement teams to focus on strategic relationships with their most valuable suppliers.
#4. Meeting compliance demands is an increasing burden
Many information security and compliance breaches occur somewhere down the supply chain, but that doesn’t mean the company that sells the end product isn’t the one held accountable. Organisations have a legal and ethical duty to choose their suppliers and partners carefully, and while responsibility to protect assets might be shared among multiple parties, it has never been more important to rigidly evaluate potential suppliers. As the focus on compliance grows across all industry sectors, supplier onboarding and maintenance is only getting harder.
Aside from automating background checks, companies need to achieve compliance with a wide range of directives depending on where they do business. For example, businesses that handle healthcare information belonging to US citizens must be HIPAA-compliant, while any type of company that holds personal data pertaining to EU citizens must be GDPR-compliant. Procurement teams face additional laws, such as the EU Late Payment Directive. Centralised and automated management of supply chains helps streamline compliance and reduce the burden on in-house teams.
#5. Supplier relations are starting to suffer
Maintaining a healthy supply chain depends on strong supplier relationships, and it’s vital for businesses wanting to gain more control over costs. The long-term effects of poor supplier relationships can be highly detrimental, resulting in things like late shipments and consequent reputational damage, late payment fees, and contracts being abandoned. As managing supply chains at scale becomes exponentially harder, it doesn’t take long before relationships start to suffer.
Often, employees lack agility in the supplier selection process, simply because they have to get through so much red tape to onboard suppliers no matter their strategic business value. When bureaucratic corporate processes end up getting in the way of business growth, it’s time for a rethink. For example, there’s no point in hundreds of different businesses all carrying out the same checks on a supplier individually. Similarly, manually onboarding suppliers, which typically still takes between 30 and 60 days, is longer than many will tolerate, especially if all you want to do is make a simple one-off purchase.
Final words
Technology is now crucial for onboarding and managing suppliers at scale. Automated supply chain management solutions offer the only practical way to maintain visibility across extended supply networks.
Mazepay eliminates the need for lengthy processes when onboarding and maintaining non-strategic suppliers, which account for around 80% of the average company’s supply chain. Contact us today to request more information.