Procurement can benefit from a flexible digital tool.
The key to successful procurement is good communication. Many companies still rely on outdated systems and procedures that make the supplier relationship slow and inefficient. Could supply chain towers be the way to solve those issues?
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Taking the analogy from airport control towers those in supply chain are designed to oversee all aspects of the process. ‘It not only views and profits visibility but also orchestrates and predicts the operational supply chain,’ says Denis Chen, senior supply chain consultant at the Canadian startup SiRP. Such towers go beyond the current visibility and graphical tools and are a platform for companies where they have the potential to move their operational procurement in an autopilot mode where it manages itself through algorithms.
Managing operational procurement today is manual and prompt to erross. Many organisations have blind spots in the core of their procurement activities. Denis Chen believes most companies are not really aware of what is the real cost of managing suppliers. ‘They might not even realise how poor or how well some suppliers’ performance is. And they are not putting actions to resolve these,’ he says. Denis and the team in Canada want to educate companies how to recognise who their best performers are and what to do when negotiating with the worst. By bringing real-time data to the negotiations companies have something they can show and start the conversation with suppliers with an advantage.
A recent study performed in a Canadian aerospace company showed that the firm spends around CAD11,000 ( aprox. £6481),to manage one supplier for a year. With introducing supply chains towers and programs that can automate a lot of the processes companies can reduce not only costs, but spend more time on other aspects of the business. ‘When you put a certain number on how much does it cost to manage your supply chain it encourages leaders to reduce that cost,’ Denis continues.
Change of trends
Another misconception Denis talks about is that companies believe platforms for automating the procurement process are very expensive and hard to roll out. Due to previous bad experience many companies are reluctant to trust vendors and even think about digitisation. But the trends are shifting. ‘There is an increasing trend from companies to look how they can digitise their supply chain on a simple ERP system.’ Small companies that do not have the budget of large competitors, also find it hard to invest in such platforms. Denis argues that large organisations need to help SMEs as this strengthens the whole supply chain. ‘It doesn’t matter if the few larger players are fully digitised if their suppliers and their sub suppliers cannot keep up. There is a lagging point so the goal is to help this manufacturing companies to turn their operational procurement from a manual to transactional department, to an unmanned operation,’ he points out.
Efficiency is gained from having better predictability through various optimisations for example the optimal shipping method , reduction of expediting shipments that are relying mostly on air. This increase in flexibility is a direct result of the improved communication between suppliers. This allows companies to better react to market fluctuations , reduce stock and goods’ wastage.
The platform that the Canadian startup provides is on a cloud and is built on top of companies ERP systems. In this way the platform has access to the entire order book and can monitor what needs to be ordered and communicates it automatically with suppliers. ‘Through this transactional data we provide not only regular spent data analysis, but we also provide shortage alerts,’ Denis explains. Using its algorithms the platform can also provide recommendations on how to better manage lead times in order to reduce the risk of shortages and also reduce inventory levels. Denis insists that the platform is flexible from a backend perspective. It follows the trend of agile procurement and can be rolled out within a few hours. Current customers are medium to large size enterprises in aerospace, energy, construction, project procurement to regular production components.
Thanks to Denis Chen for his interview that made this article possible.
Denis Chen is a senior supply chain consultant at SiRP, Canada. He has worked in different organisations with a focus on business development and procurement. In his current role he wants to educate companies on how to use digital technologies to improve their operations and bring value to their customers.