Supplier risk and performance management have long been staples in the procure-to-pay department, but the disastrous supply chain disruptions over the last year and a half have proven many organizations’ legacy strategies inadequate.
Legacy data providers, survey questionnaires and email interviews often fail to capture the breadth and quality of data organizations need to assess their KPIs (key performance indicators). Even worse, warns SupplyHive CEO Louis Sandoval, these outdated or ineffective tactics can preserve the inherent bias of a company and its staff, keeping vendor diversity efforts sidelined.
Speaking with PYMNTS, Sandoval explored the emergence of objective, technology-driven supplier performance assessments and how the technology can even the playing field in B2B payment terms negotiations, mitigate supply chain risk and encourage a mindset shift in how organizations view their supplier partners.
Identifying The Gaps
While supplier management strategy is not a new concept, sometimes it takes disruptions and bottlenecks to create a wake-up call for organizations in need of a revamped approach.
Sandoval pointed to the PPP (personal protective equipment) supply chain as one area that experienced such a shock. In many instances, healthcare firms’ reliance on offshore manufacturing in Asia to produce and supply PPP, meaning a high portion of supply chain risk was concentrated in one area with a few vendors. Yet the event that created such an increased demand for PPP — the COVID-19 pandemic — also hit many of those geographic markets hard, causing a breakdown in firms’ PPP procurement abilities.
Similar challenges have revealed themselves in the logistics sector thanks to port backlogs, accidents or truck driver shortages.
These “single source supplier scenarios” continue to spur an increase in efforts among procurement teams to disburse risk across geographies and suppliers.
“Do you put all your money on one logistics company and one pattern of transportation, or do you spread the risk?” said Sandoval. “Everybody is looking at risk management from the perspective of: Does my supplier have the financial depth and resources to survive any major upheaval in the market?”
Quick online surveys probably won’t provide as much insight that an organization needs to accurately assess such questions. But even more robust data collection measures still have shortcomings.
Implicit bias in the questions that are asked, how they’re collected and how they’re interpreted continue to stifle vendor diversification efforts. And as more businesses look to diversify risk through dual-sourcing strategies, the process of choosing new suppliers to work with can similarly be held back by unintentional subjectivity.
This creates an avenue through which some vendors can be “pigeonholed” into certain roles as service and product providers and limit those firms’ access to higher-ticket contracts, Sandoval said.
Similar to the third-party data-driven analysis of consumer creditworthiness with the creation tools like FICO scores, Sandoval said there is an opportunity for the procure-to-pay arena to embrace objective data analytics that can not only present a 360-degree view of a supplier’s performance but reduce the bias that could be holding that vendor back.
Leveling The Playing Field
Also important to elevating a firm’s supplier diversity and management strategy is understanding that the process should also involve an inward assessment. Often, when an organization considers working with a new supplier, the firm will question how that company might fit within the confines of that business’s own culture.
“It’s always a cycle of: How do they fit in our box? In our culture?” explained Sandoval. “As opposed to: How do they add to our culture?”
The most progressive firms are reconsidering how they view themselves in order to incorporate a more diverse supply chain into their operations. Not only can this help provide minority-owned businesses with access to lucrative opportunities, as well as mitigate risk across the supply chain, but it can also create an environment of healthy cash flow across a business and its partners.
One place this is especially evident is in negotiations of B2B payment terms.
Sandoval highlighted the prevalence of Net 180 terms, which, for a large multinational corporation with plenty of access to capital, may not be much of a problem. Yet for smaller organizations working with large buyers, having limited leverage to fight for more favorable terms can create a difficult scenario in which a business must either absorb the hit on cash flow or risk losing a key customer.
“A lot of it occurs in negotiation, and it comes down to the relationship,” he said.
As more organizations prioritize supplier diversity and supply chain risk mitigation, the technologies they choose to cut out implicit bias and drive inclusion can also create an ecosystem of valuable B2B partners. When a company supports the financial health of its supply chain, everyone down the line can benefit.