Justin Hughes, PA supply chain expert, is extensively quoted in an article on suppliers’ data and using it to the advantage of the business.
Results from a recent study of procurement departments last year showed that organisations that are good at supplier market intelligence also see spend savings, increased investment in procurement and increased adoption of best practices.
Justin explains that top tier suppliers can be a great help in assessing the entire upstream supply chain to assess risks, anticipate technology development and forecast prices changes: “It is not common place”, he says, “It is the leading edge of good practice and not particularly common practice yet.”
Justin says that the number of vendors in the top tier of suppliers may determine if such an approach is practical. He gives an example of supermarkets that might have thousands of direct and indirect suppliers, who might find it impractical with all but a few select, strategic suppliers: “Where we have found this happens is where you have a supplier who is part of a strategic project, and then the procurement team might decide to adopt this approach. It helps to understand what drives the market, their suppliers’ supply chain and what drives their costs.”
Justin goes on to talk about some work he did with a client on breaking down the costs of ID cards into the price of the card chip, the plastic, the laminate, the printing, the labour and so on. He comments: “We found that the chip was about 75 per cent of the cost, so a movement in the prices of the plastics would not much affect your costs, but a movement in the price of chips will."
Justin explains that, working through each top tier suppliers’ own supply base, most of the chips came from the same manufacturer, making that a main determinant on price and a major risk.
As suppliers can be reluctant to expose their value chain, Justin advises that the best time ask is during the competitive phase of contracting, when procurement has some leverage: "You can identify costs from suppliers A and B. Maybe A is better at sourcing, but B has lower labour cost, then you can get to an ideal price. It can become very powerful when you have a competitive situation.
But introducing the approach once a supplier is already engaged can be much more difficult: "In strategic situations, it depends on the relationship you have with the supplier."
One way of tempting suppliers into the arrangement is to offer an understanding of what your own customers will be looking for in the future, Justin says: "You have to be careful not to give them too much insight such that they can navigate around you or take it elsewhere. But if you are able to get into that partnership mentality it can be an incredibly powerful forecasting tool and all part of the process of making procurement be proactive rather than reactive."