How PRGX helps category management and merchandising leaders.
When a supplier is a global business, having clarity on all its divisions, regional operations, and subsidiaries can be hard. You might have numerous vendor relationships with the overall supplier organization you aren’t even aware of.
A blurred view can hide untapped sources of value. Is your annual spend with a large vendor larger than anyone realized? Is a supplier getting payment terms more favorable than others in the same parent company?
The only way a procurement team can really know for sure is to enrich the data it has in its ERP system and analyze the data. There is a wealth of publicly available information in suppliers’ annual reports, financials, and the benchmark data collected for major product categories that can answer key questions about your suppliers ahead of contract negotiations or re-negotiations, such as:
- Are they maintaining their funding levels?
- Are they planning strategic shifts that could leave you vulnerable?
- Are they benefiting from cheaper raw materials and not passing on the savings?
By mapping all the parent-child relationships among your suppliers, and creating fact packs that combine valuable public information about them, retailers and manufacturers can uncover aspects of financial performance, profitability, and payment terms that can improve margins and cash flow.
Mapping the Relationships in Your Supplier List
Mergers, spinoffs, disparate ERP systems, and poor data all combine to make it difficult for large organizations to keep track of suppliers and how much value their relationships deliver.
By conducting regular parent-child mapping exercises, businesses gain a fuller picture of the extended relationship that may exist among suppliers and any opportunities those connections might point to.
For example, analytics might reveal that the size of your spend with a major vendor and its subsidiaries is much bigger than previously thought.
For retailers, a clear view of the relationships between parent and child suppliers can also give you a harmonized view of the funding received for product promotions.
Creating Fact Packs
Information gleaned from supplier annual reports, financials, analyst calls, and price movements in commodities markets can provide a much fuller picture about their future plans and response to current market conditions.
Annual reports can reveal what the supplier is doing in terms of their overall strategy, key projects and initiatives, notable partnerships, and any strategic investments that might impact the relationship and how you negotiate with them.
Financials will show you how the supplier is performing outside of their relationship with your organization. Retailers will want to know how their sales growth compares to a supplier’s, and if margins are in line with the supplier’s.
Earnings calls and analyst presentations can help you keep regular tabs on a publicly traded supplier’s financial results since the last annual report. You can see how any changes in market conditions might have affected their overall business.
Commodity prices and their impact on supplier pricing is something many procurement teams consider. Tracking them regularly can alert you to an imminent change in prices or prompt you to ask for price concessions when you know commodity prices have softened.
Putting Enriched Data to Work
Enriched data and analytics can also help you assess the operational efficiency of supplier relationships. Critical comparisons can be made among suppliers to understand who is benefitting from optimal payments terms and see the true net cost of goods being purchased net of funding.
Days sales outstanding (DSO) can be used as a metric to see how suppliers are treating your company versus others they sell to. Are your terms more favorable than others, or in-line with what the supplier has negotiated elsewhere?
For retailers, the difference between what’s been paid on an invoice and the true net cost is the application of the promotional funding to an item level. The variance can be significant, and knowing the true net cost is vital to understanding the actual margins being achieved in each category.
What You Can See, You Can Optimize
In disrupted times, it makes sense to approach supplier negotiations armed with as much information as possible.
Creating an enriched data source for source-to-pay analytics can show you where the performance and operational variances are among suppliers, and point to places where more value can be achieved from the relationship.
Want to learn more? Check out our Valuable Use Cases for Enriched Advanced Analytics in S2P Webinar and E-book to hear how enriched analytics can help procurement teams strengthen their position at the negotiating table.