Digital Technologies for Supplier Innovation

Written by Hew Shu Yeng, GDPM

by Hew Shu Yeng, GDPM

Supplier innovation is one part of procurement’s managing supplier strategy. Procurement can use new digital technologies and systematic approaches to make a success of supplier innovation which is digitally manage a more complex supply chain and accelerate the performance of the strategic supplier.

Connect and coordinate suppliers’ information ecosystem to delivers maximum flexibility, visibility, efficiency, collaborative, secure, agile, and sustainable by implementing the right digital tools. Besides that, able to manage suppliers more transparency, and can streamline many processes to improve the productivity of procurement operation. So, the organization should be trying to more understand the importance of technology for supplier innovation. Once the organization using a digital tool will improve overall efficiency by performing transitionally manual tasks with paperless, help to identify relevant suppliers, and develop an effective working relationship based on business needs.

Managing Supplier Innovation

Organizations need to monitor supplier innovation performance on a continuous basis to ensure that select the right suppliers with the right capabilities in the early innovation process. So, systematically integrating knowledge and competencies of key suppliers, start-ups, and the external “crowd” are more important to extend the innovation capabilities of the organization. The procurement department plays an important role which is a key interface person and catalyst between suppliers and internal functions such as supply chain, production, quality control, and engineering to continuously optimize operations, improve quality control, and strategic decision making.

The procurement department should be priority below activities to increase organizational value for ensuring delivery of services and goods on time, in full (OTIF) to operations at best life-cycle cost (LCC).

  • Link to supply chain strategy with the procurement strategy and the project portfolio through support by digital technologies.
  • Supplier market innovation scouting based on big data and advanced spend analytics to identify any saving opportunities, product substitutes, new suppliers, and start-ups.
  • Link up suppliers with internal functions such as the “crowd” and start-ups through open innovation like innovation contests, pre-RFQ specification-prototyping training with suppliers, etc.
  • Use crowdsourcing to source the best products and services by selecting the right supplier with the best price to secure the best value for the organization. The organization can monitor trends and supplier performance in the cloud easily. 
  • Establish training and workshops to share new knowledge or potential of new technologies to key suppliers to push innovation through design thinking, rapid prototyping, minimal viable products, etc.

Digital Supply Chain Integration

Digital Supply Chain integration would be paperless, eliminate all manual data entry, and updates by the development and implementation of advanced digital technologies (IoT, blockchain, machine learning, artificial intelligence, predictive analytics, etc.) to drive improvements of traditional supply chains. For example, digital supply chain integration also contains production, goods and services, and supplier data. But digital technologies able to help drive streamlines supply chain processes, shorten processing time and ensure accuracy of status.

An intelligent digital supply chain leverages the cloud, enables real-time connectivity, advanced analytics to create a connected ecosystem and coordination of all involved supply-chain parties through linked, cloud-based SCM-systems, and digital tools to achieve 100% on time in full (OTIF) delivery and reduce inventory.

The procurement department will integrate with the Supply Chain Department to configuring and coordinating the overall supply chain from the customer through to all levels of suppliers which is including all functions with transparency and visibility throughout. Several capabilities required for emerging supplier innovation:

  • Digital supply chain integration strategies harness the power innovations by a robust application of tools such as big data, the internet of things, artificial intelligence, machine learning, and digital control towers to manage supply chain design, modelling, and simulation under consideration of new concepts, and technologies with minimal human intervention.
  • Predictive analytics can help supply chain management to find out production bottlenecks, potential risks, and interruptions. The organization can react early to prevent and perform predictive maintenance from material flows, and operation processes.
  • Tracking capabilities will allow organizations to monitor the movement of all goods in real-time and help optimal availability of information on performance.
  • Cloud-based digital tools will link to all supply chain parties such as process management, material flow, supply and demand planning, resource planning, inventory levels, cash flow, and strategy in real-time.

Digital Category and Supplier Management

Effective digital category and supplier management can revitalize the competitive advantage which is to reduce lead times, freight and inventory costs, improve customer experience, and supplier performance. For example, capturing, analyzing, and acting on real-time data from the customer, distributor, production, and suppliers to optimize supply chain performance and enabling strategic management.

Digital category management is able to manage direct spending effectively to achieve cost savings and create real business value. The buyer can interact and collaborate with suppliers in one centralized environment with transparency such as negotiation and arrange delivery.

Several benefits can be realized if continuous improvement of the increase in technological complexity and digital capabilities as below:

  • Predictive supplier risk management (SRM) to detect early warning risk indicators like financial ratings, supplier onboarding, and qualification to segmentation.
  • Easily manage real-time supplier information, lifecycle, performance, and risk all in one place.
  • Allow internal organization and suppliers easy access to real-time insights.
  • Automated tracking of supplier performance and stored all the information in real-time to provide proactive monitoring of supplier behavior.
  • Suppliers will automatically receive an error message if missing information during the tender stage.

Big Data Analytics

Big data analytics can improve procurement decision making by enhanced by very large data sets, sources, and variables. So, would much easier to manage suppliers go through detailed analytic which is to collect and analyze suppliers’ past performance data, history purchase price, risk assessments, non-conformance reports, and real-time delivery status. Furthermore, effective big data integration and analysis can help the procurement department more comprehensive understand of consumption patterns, market trends, and resource availability to maximize the negotiation lever with suppliers. For example, the buyer can use multiple big data sources to predict cost or price fluctuations, demand, and supplier risk to enable proactive procurement decision making. So, the procurement department will become in a strong position and indispensable for strategic planning in supply chains to meet customer delivery schedules, identifying cost-saving, and predict future risks.

Fully utilizing big data will increase procurement analytical capabilities, predictiveness, proactiveness, and supplier innovation. For example, buyers able to compare suppliers’ real-time pricing and availability to get the best quality products at the best possible price during the tender stage. Besides that, the buyer also can use data to generate reports like spend analysis, perform assess suppliers, and do compliance checks. Advanced analytics for the history of order accuracy, transportation, and logistics costs can provide a comprehensive procurement strategy development and cost-effective. The power of big data is can be identifying trends of raw material prices, labor rates, shipping rates for improve commodity strategies, and supplier market innovation scouting. The procurement department can immediately receive feedback on product and service quality from internal via digital tool as well. So, the buyer can utilize theses information to determine and monitor product quality issues and immediately highlight or feedback these quality issues to suppliers to ensure receive a high-quality product with the best prices to meet specification and customer requirements.

Digital Purchase-To-Pay Process

The standard procurement processes for purchase-to-pay are requisition of goods and services, processing purchase orders, receive the material, paying invoices, etc. Digitizing these processes can help procurement reduce repetitive tasks with paperless and spend the minimum necessary time on controlling the automated processes only. All the related information will store on a cloud-based and centralized environment to develop the best strategies to increase the value of suppliers’ relationships and mitigate suppliers’ risk.

Buyers can collaborate and communicate with suppliers more efficiently which is to reduce manual controls, streamline document matching, and prevent unwanted transactions. Furthermore, the buyer’s ability to retain accurate and updated suppliers, products, prices, and information to improve supplier selection and easy to evaluate supplier performance as well.

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Comprehensive purchase-to-pay solutions can deliver few functionalities as below:

  • Purchase requisition and approvals

Buyers send RFQ via digital tool with simply enters the appropriate details, select required product and service, and picks their preferred suppliers from a master database. Besides that, the digital tool will automatically route this workflow to approvers without requiring the buyer to send any notification to approvers.

  • Purchase order management

Most of the purchase-to-pay system can automatically create PO once purchase requisitions were approved.  Besides that, can be issue multiple products, and differences need date in a single PO.

  • Invoice matching

Purchase-to-pay digital tool allows the organization to confirm product and service receipt, and capture invoice information with automatic three-way matching. The organization can improve speed and accuracy with every iteration of invoice approval, manage exceptions, perform PO and delivery note matching, and integrate with the account payables system.

Conclusion

Supplier innovation is one of the strategic and value add to the organization. So, fully utilize of digital technologies in supplier innovation can provide unique benefits to the organization which adds significant value to procurement processes such as strategic sourcing will be more predictive, transactional procurement will become more automated, and supplier relationship management also more proactive as well. Digital technologies combined with procurement processes are enabled to provide access to previously unavailable data to drive more complex analysis, and better supplier strategies to increase the efficiency of operations. Furthermore, getting a clear view of the real-time market, and able to monitor potential supplier risks in real-time and enhance supplier audits, will enable an organization to look for new opportunities through digital technologies.


References

Bernd Schreiber, Rolf Janssen, Stephan Weaver and Stefan Peintner. (2016). “Procurement 4.0 in the digital world”. Retrieved from https://www.adlittle.com/en/insights/viewpoints/procurement-40-digital-world, accessed 12/09/2020.

Chris Lim SiaoYian, DPSM. (2020). “Spend Data Analytics for Effective Procurement”. Retrieved from SIPMM: https://sipmm.edu.sg/spend-data-analytics-effective-procurement/, accessed 14/09/2020.

Daniel Ball. (2020). “Wax Digital: Digital tools for managing supplier relationships”. Retrieved from https://www.supplychaindigital.com/technology/wax-digital-digital-tools-managing-supplier-relationships, accessed 12/09/2020.

Kalyar Thiri Maung, ADPSM. (2020). “AI Technologies for Digital Procurement”. Retrieved from SIPMM: https://sipmm.edu.sg/ai-technologies-digital-procurement/, accessed 14/09/2020.

Knut Alicke, Jürgen Rachor and Andreas Seyfert. (2016).  “Supply Chain 4.0 – the next-generation digital supply chain”. Retrieved from https://www.mckinsey.com/business-functions/operations/our-insights/supply-chain-40–the-next-generation-digital-supply-chain, accessed 12/09/2020.

Rob Biedron. (2020). “Big Data Analytics in Procurement”. Retrieved from https://www.purchasecontrol.com/blog/big-data-analytics-in-procurement/, accessed 13/09/2020.

About the Author: Hew Shu Yeng has substantive years of experience in the field of planning, operation, and sourcing, specifically in the oil and gas industry. She holds a Bachelor's Degree of Entrepreneurship with Honours from the Northern University of Malaysia, as well as a Specialist Diploma in Supply Chain Management from Singapore Polytechnic. Shu Yeng is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM), and she completed the Graduate Diploma in Procurement Management (GDPM) on October 2020 at SIPMM Institute.

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