Much is made of last-mile in the supply chain but it’s time to focus on the first mile
Supply chains were a lot simpler a long time ago: producers made their goods and carried them to market where consumers bought them. Two hundred years ago, the Industrial Revolution created mass production. More recently, innovations like robotics, e-commerce, advanced logistics, and transportation dramatically improved manufacturing productivity and made it possible for companies to serve customers around the world. When you stop to think about it, humans have made incredible progress in a relatively short period of time.
But big progress creates new challenges. Today’s global economy faces two trends that will force another wave of innovation and require manufacturers to be more nimble, efficient and productive. The first is consumer demand for instant gratification. The second is the risk of impending tariffs in countries such as China and Mexico.
Today’s society is increasingly driven by instant gratification. According to Amazon’s Best of Prime 2018, Prime members worldwide ordered two billion products with the one-day delivery or faster option last year. Modern consumers want the reward of in-store purchasing without having to go to the store. Satisfying them requires manufacturers to drive waste and inefficiency out of their supply chains.
Modern geopolitics make it unclear when, where, and if tariffs will go into effect — all of which threaten businesses’ bottom lines. While some manufacturers plan to absorb tariff-driven increases to supplier costs, others are starting to move production outside of China and Mexico to avoid them. Regardless of the strategy, manufacturers must find ways to offset these unexpected costs.
The first mile of a manufacturer’s supply chain is the best place to drive efficiency and recover hard costs. Most companies use email, spreadsheets, and other manual methods to collaborate with suppliers: requesting quotes, managing orders, and paying them. These manual processes create waste and mistakes that pollute ERP systems with bad data. They erode margin and also prevent manufacturers from shipping to customers on time and at the best price. These are the reasons why the first mile is so strategic and why streamlining supplier collaboration presents the best opportunity to make your supply chain more productive.
Suppliers are critical players in any supply chain. When collaboration with suppliers is poor, it creates problems in the first mile that leak all the way to the last mile—leaving puddles of costly mistakes along the way. The difference between a productive supplier-buyer relationship and an inefficient one can also mean the difference between meeting and missing important delivery dates to customers.
Problems start when buyers don’t have enough time or visibility to be sure they’re working with the suppliers that perform the best. Every CPO knows that managing the never-ending back and forth with suppliers is so time consuming that it’s nearly impossible for any procurement team to fully research the best possible suppliers. Paper and email based processes also mean that supplier scorecards and RFQ’s are cobbled together by hand, rather than being data driven and automatically maintained.
Industry outsiders are often shocked to learn that some of today’s largest companies still use spreadsheets and email to keep track of POs, but supply chain insiders know this is very common. Unfortunately, trusting email and spreadsheets to keep track of every change to price, quantity, lead times and delivery dates on every order often means every part of the organization is flying blind. Operations is never sure if they’ll receive the parts they need, sales doesn’t know if customers’ orders will ship on time and finance isn’t sure if the invoices they receive are correct.
Invoices & Payment
The payment process is also plagued with inefficiency that can lead to paying invoices before reconciling them to their corresponding PO and receipt confirmations. The end result hurts both sides: manufacturers risk overpaying for goods and suppliers wait too long to get paid by their customers.
Technology to streamline PO collaboration has been available for a while, but it used to be clunky, too expensive to justify and difficult to get suppliers to use. Fueled by digital transformation, today’s supplier collaboration technology makes many of these concerns obsolete. SaaS solutions offer lightweight ERP integrations and easy-to-use interfaces. This lets both sides replace email with software that creates a single source of truth between buyers and suppliers. This increases productivity and creates mutual visibility and accountability.
The Path to Productivity
It’s time for Chief Procurement Officers (CPOs) and Chief Information Officers (CIOs) to save time and cost stemming from supplier collaboration. From RFQ to order management and accounts payable, it’s possible to use technology to streamline archaic processes and free buyers up to focus on the exceptions that pose the biggest threats to production schedules. Trust can be restored and businesses thrive as a result.
The first step to improving supplier collaboration is to form a small team, consisting of both IT and procurement members, tasked with researching and testing today’s best technology solutions. Once identifying a solution that works best for your organization and with your ERP system, calculate an estimated ROI to gain an understanding of just how much the increased productivity will benefit your business. If the numbers add up, you’ve likely found yourself a solution that will have a tremendous impact on productivity.
From the first mile to the last, the only way for organizations to compete in a “Prime Day,” tariff-wobbling world is to make every link in their supply chain faster and more efficient, from sourcing to procurement to payment and delivery. The organizations that rise to this challenge will embrace digital transformation and use proven technology to modernize the first mile in order to recover cost, restore trust, and remain competitive in the global economy.
Written by: Tom Kieley, CEO SourceDay
Tom Kieley is CEO at SourceDay, a SaaS solution that automates purchase order, request for quote and accounts payable management to remove costly waste and errors from global supply chains. Tom is a veteran business owner with more than a decade of experience in product management and operations, hardware and software sales, and supply chain management.