2010 Prediction: Transparency Rules the Supplier Management Focus

Spend Matters believes that in 2010 transparency -- not simply compliance management or supplier on-boarding -- will begin to rule the supplier management focus. In recent years, many organizations have begun their supplier information management journey by attempting to solve singule issues, often in response to a particular regulatory, customer, or market demand. In some cases, these investments have allowed procurement organizations and the the business areas they represent to check the box on meeting standards requirements (e.g., RoHS in high tech, CFR requirements for traceability in medical devices, etc). Others have gone slightly further, providing new capabilities that actually improve business performance (e.g., supplier on-boarding systems that enable companies to bring more spend under management faster). In nearly all cases, the desired result has been a specific goal rather than a broader level of transparency between the buying organization and its supply chain (potentially multiple tiers).

Spend Matters believes that, starting in 2010, we'll see leading procurement and supply chain organizations start to focus on building broader transparency into their supply base, not only to solve immediate requirements but also to stay flexible and nimble, the better to manage future requirements and to react to changes in the market. In this regard, companies will focus on transparency as a means to both current (and necessary) realized ends as well as future, potentially unknown ones, such as the need to rapidly implement and effect a successful supplier development effort in response to a crisis (e.g., quality failure, adulterated ingredients/parts, child-labor violation, etc.) In some cases, they'll rely on suppliers to partially or fully offset the costs of these programs by requiring a registration and/or annual fee. Our research suggests that there is significant polarization among organizations about whether to have suppliers offset transparency-program costs (or, in some cases, to make such programs a profit center).

Spend Matters believes that companies will focus on three types of transparency (which may not all be the subject of a single supplier-management initiative or technology/solution investment). These are: financial and business transparency, social transparency, and performance transparency. Financial and business transparency often begins with understanding the basics of a supplier's overall financial health as well as the actions and relationships of its management team and board of directors. As organizations start looking at supplier financial and business transparency, they often begin by examining a subset of their overall set of suppliers (e.g., top 50, top 100, top 10%) based on overall spend and/or strategic prioritization, according to a customized set of criteria. With this goal in mind, the first logical investment often is a supply risk platform (which could be as simple as Excel) to gather, collect, and analyze basic information on a periodic or batch basis.

As an alternative, companies may opt to enrich spend visibility reports and profiles with additional information and supplier records (e.g., financial supply risk indicators, credit indicators, etc.) Later, as organizations become more sophisticated at developing views into financial and business transparency, they often focus on developing continuous insights into suppliers' overall financial and business health as well as expanding such programs to a majority -- or all -- of their suppliers. It is at this stage that companies focus less on basic, periodic intelligence than on creating continuous transparency, which can better inform a range of proactive business decisions (e.g., better sourcing, supplier selection and supplier development decisions) rather than simply enabling reactive, mitigative efforts.

Stay tuned for a further exploration of the other kinds of supplier transparency for which we expect to see companies strive, and in which they will invest: social transparency and performance transparency. We'll tackle these subjects next week in our next 2010 Predictions post.

- Jason Busch