If you want an efficient supply chain, don't mess with your suppliers

We all know the past few years have been challenging as far as supply chain goes, and it doesn't look like things will improve any time soon.  According to McKinsey, global supply chains suffer from three primary challenges: labor shortages, equipment availability, and the ripple effect of global bottlenecks. 

IndustryWeek magazine adds that suppliers are struggling to maintain capacity, that there are container shortages, and that there are impactful economic factors.  They recommend that organizations, particularly manufacturers that more heavily rely on an efficient supply chain, explore solutions to minimize their risk and exposure.  These include creating a mix of domestic and international suppliers, implementing digitalization strategies and a management operating system that provides better visibility across the supply chain, and improving data capture and integrity.

Manufacturers typically have complex supply chain environments, with processes that are based on agreements and blanket orders with inherent ordering rules and conditions around pricing, shipping, and deliveries, as well as processes with mandated supply chain rules, and special delivery scheduling and conditions. Such environments could involve orders with hundreds of line items, partial shipments per line and multiple receiving and invoices per line, as well as processes that include intermediate warehousing and/or 3PL, QA, MRB, 4WM and returns, import via sea or air freight, and more.

In such environments, enterprises invest a significant amount of time and effort ensuring that suppliers comply with their business rules and policies, following up on order fulfillment, supply chain execution and on-time delivery, validating invoices, handling invoice reconciliation processes, validating payments, handling a significant number of errors and discrepancies, and preventing fraud.  Additionally, complex environments often involve multiple geographies and the associated differing rules, regulations, and cultures, as well as the presence of multiple applications and ERP systems.

In recent discussions with three major industry players, one from the Oil and Gas industry, the other a semiconductors manufacturer, and the third in the aerospace industry, common themes emerged.  All three used to suffer from inefficient supply chains, which resulted from bad supplier relations.  Bad supplier relations developed because of an inefficient invoice management mechanism, and it was digitalization, visibility, and data capture and integrity that made a difference.

When suppliers are in the dark about the status of their invoices, and find themselves repeatedly inquiring about the payment date, that's bad news for their customers.  If weeks go by before finding out that the invoice was incorrect or has some other issue that prevents its payment, that's even worse.  Bad supplier relations resulting from inefficient invoice management systems could lead to supply chain gaps that negatively impact production lines, which is bad for business.  That's precisely what these three companies used to suffer from.

All that changed once these three leading corporations implemented an automation system that provided suppliers with invoice submission guidance aligned with corporate business rules and policies, efficiently validated each invoice for accuracy, and created complete transparency into invoice status and payment date.  Knowing right away that an invoice is approved or rejected and being able to plan their cash flow has had a tremendous impact on these suppliers, reducing uncertainty, and freeing them from having to manually inquire about invoice and payment status.

For these buyers, the impact was clear: supplier relations improved, errors were removed, paperwork disappeared, and most importantly – their supply chain became more efficient and reliable.

The automation system that these companies implemented addresses source-to-pay activities across direct and indirect spend, utilizing hundreds of software bots and relying on Artificial Intelligence and Machine Learning technologies to provide sophisticated document review and validation within context of the entire workflow.  Because of the value it delivers to suppliers, over 90% of them fully participate in the process, which covers close to 100% of invoices and over 90% of spend.

While a source-to-pay process automation tool may not address all supply chain challenges, it could have a significant impact on production lines and on the competitive nature of both buyers and suppliers and is an important factor contributing to improved buyer-supplier relations.  So, if you want an efficient supply chain - don't mess with your suppliers, collaborate with them!