Supply Chain

Strategic Supply Chain Platforms Aid Risk, Compliance Functions

The platforms enable changes that at once drive supply chain process improvement, maximize compliance, and mitigate risk.
Conway MacKenzie, Director, and Adam SchabelOctober 31, 2018

Improving a company’s performance and its risk management position are vital in today’s competitive business environment. Savvy CFOs are continually on the lookout for new strategies and, quite often, technology tools.

As such, it’s fairly common for finance chiefs to receive requests for new strategic supply chain platforms (SSCPs) that serve to maximize compliance and minimize risk.

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Some of these proposals are more attractive than others, but distinguishing the “hard” savings from the “soft” can often seem more daunting than launching the project itself.

However, if you are approached by an enthusiastic supply chain team that’s excited about process improvements and incremental savings, it may well be worth a closer look. Let’s take a look at the why and how.

Adam Schabel

Have you ever experienced a legal dispute with a supplier where victory or defeat hinged on the communication of revised purchase-order terms and conditions — those that were supposedly issued six years ago? Or, received a follow-up communication from a supplier that allegedly never committed to revised quality requirements?

Or, perhaps, have you experienced an internal process breakdown that led to a large purchase expenditure that was never fully authorized?

To take this a step further, imagine exacerbating any of the aforementioned situations by adding in the dynamic where your internal buyer exits the company without leaving behind critical documentation or email trails.

These scenarios may be painfully familiar. Unfortunately, one significant instance of process noncompliance or disappearing document every few years can potentially cost thousands or millions of dollars.

But…. Imagine a purchasing department where workflows have clear approvals via electronic date stamps. Processes are error-proofed so all RFQs mandate the attachment of certain documents attached or the buyer cannot forward bid packages. Suppliers are prohibited from issuing a response without accepting the RFQ terms.

All supplier document views are logged into the system. Critical documents are memorialized. There is less potential for rogue activities by buyers or others in the organization trying to improperly influence them.

By now you should get the point: the same changes that will drive process improvement will also drive compliance and mitigate risk in dealing with the supply base.

An SSCP can resolve all of these issues and more. It commonly includes procurement modules for managing the bidding process, P.O. management, spend analytics, supplier data management, and contract management, but it can consist of far more.

An SSCP can take many business processes external to your ERP and package them into a single software solution. It can replace a hodgepodge of disparate processes based on combined functionality from the email, spreadsheets, shared drives, and paper forms that most purchasing teams utilize.

These platforms can operate independent of your ERP, but more preferably are integrated with it. Integrated systems have ERP master data driven throughout the system, and whenever modified the data loops back to the ERP with updated master data.

Certainly, the temptation in writing an article on this topic is to drift into the evolving world of digital transformation. For anybody unfamiliar with the term, its basic definition is the connectivity of digital systems for the purposes of enhancing decision-making. While definitions can be debated, pundits agree that digital transformation will become a key competitive advantage in the future.

However, for the purposes of this discussion, I am focusing solely on SSCP while acknowledging digital transformation’s existence. In the context of this article, SSCP can be considered a subset of digital transformation, but was born before the term digital transformation became common.

My main point is to illustrate that you can gain improved compliance and risk mitigation independent of undertaking a broader, strategic digital transformation journey. Of course, the more expansive digital transformation is in your organization, the more you can expect the SSCP benefits to be magnified.

Improvement Areas

Several years ago my corporate team ventured down the SSCP path of business process redesign and identified workflows that would take our processes to a world-class level. Already working in an environment with a strong internal control and Lean Six Sigma belief system, the process improvement and internal control possibilities revealed were surprising.

During the journey with our SSCP deployment, different functionality themes became apparent:

  • Data & document retention — Forms can be stored with specific user access control, document revisions tracked, and procedurally required documents archived. The ability to prevent documents from being deleted may also be possible (whereby files can only be added).
  • Time-stamped transactions — This enables a viewable history of user transactions.
  • Approval workflows — Off-line approval processes can be transitioned from paper to software, thereby mimicking the company’s formal authority approvals.
  • Error-proofed workflows — Procedures can be designed to require data, documents, or responses before a tollgate process permits further progress. The ability to bypass procedures is greatly reduced, thereby driving improved process compliance (and standardization) internally and with the supply base.
  • Transparency — In the aggregate the points above provide improved clarity and access for leadership into the purchasing function’s decision-making process.

Aside from the improved process functionality that an SSCP can deliver, more specific compliance and risk management initiatives may benefit an organization further by integrating other external modules.

An example of a common bolt-on application is a supplier risk assessment tool. These types of modules monitor suppliers’ financial health, geopolitical events, natural disasters, and other force majeure events.

Additionally, instead of having this information in a disparate spreadsheet, the data files can be integrated into the SSCP to provide a broader view of the supply base’s overall performance and risk. Proactively collecting this information can improve decision-making in a multitude of ways.

Another example of a useful module is government compliance requirements for the Conflict Minerals Rule. The rule is a regulation under the Dodd-Frank Act, which intended to make companies purchasing gold, titanium, tin, and tantalum investigate whether materials originated from the Democratic Republic of Congo or an adjoining country.

Although the SEC no longer enforces the rule, it required that companies track purchases of these materials through their supply chain at the item-number level and extended beyond normal ERP functionality.

Whether a company developed a homemade solution, or outsourced or purchased a canned software package to manage conflict minerals, eventually integrating it to the SSCP yet again broadened buyers’ perspective by having all relevant data at their fingertips.

From a reliability standpoint, a one-time data-field mapping exercise for the ERP integration mapping process will always be more reliable than periodic spreadsheet updates with Vlookup formulas. Overall, it makes management of new initiatives easier.

One final example of a SSCP risk management application is Business Continuity Planning. If your supply chain activities are in a location that experiences a disaster but also supports other geographic locations, the team can still work largely unimpaired because the ERP and all supply chain workflows in the SSCP can be accessed remotely.

The Future

Deploying an SSCP requires significant energy, planning, and teamwork, and truly digitizing it drives maximum value. Many SCCP providers have different strengths and weaknesses, so aim to have comprehensive reviews of system and customer reference calls.

You may feel your company’s problems and needs are unique, but chances are that one of the SSCP providers already has your solution sitting on the shelf.

As you do your long-term planning and process mapping, also strongly consider a robust Strategic Supply Chain Platform. The level of organization it brings is tangible. The ROI is offers could be incalculable.

Adam Schabel serves is a a director within the transaction services practice at consulting firm Conway MacKenzie.