How to boost competitiveness through supplier collaboration

Top companies consider their supplier networks for their contributions to innovation and overall value, not just cost.

Three questions to ask:

1. What are the key differences between typical procurement strategies and the integrated and sustainable approach of today’s forward-thinking organizations?
2. What are the key factors inhibiting stronger supplier collaboration?
3. How are leading organizations transforming supplier collaboration into a strategic value driver?

Contributors:  Vijay Yalamanchili, Paula Ferguson, Bryan Sansone.

Leading organizations are transforming their supplier collaboration capabilities from cost reduction to a strategic value-creating engine by reinventing and reimagining collaboration with suppliers and creating a global, connected and dynamic ecosystem of partners through which there is active management and constant communication.

In the past, traditional procurement collaboration strategies were often seen as little more than well-intended attempts to overcome one-sided buy-seller relationships, emphasizing communication in the context of price negotiations and transactional buying. Sales and operations teams would work with planning to define demand requirements, leaving procurement and its supplier base to figure out how to meet the demand.

Today, forward-thinking organizations are taking an integrated approach to supplier collaboration, avoiding silos and instead bringing planning, procurement and suppliers together through an integrated web of people-centric cooperation, optimized business processes and digitized enabling systems.

Levers such as direct materials collaboration, joint strategic planning and integrated technologies should work synergistically to advance capabilities across the value chain, which can result in enhanced customer experiences while simultaneously supporting suppliers’ strategic goals. A seamless transfer of information — up and down the supply chain — can improve strategic and operational performance.  Some companies working with EY teams have seen a 10% to 50% reduction in working capital, up to a 27% increase in EBIT, a 50% improvement in supplier service levels and up to a 45% increase in on-time delivery.

Integrated supplier collaboration can lead to:

With this framework, procurement functions can help their organizations build a competitive advantage working with suppliers as opposed to disseminating independently made organizational decisions to suppliers. To activate these levers, organizations should focus on four things.

Partnerships for success

The evolution of supplier collaboration champions growth and resilience between organizations and suppliers, cultivating opportunities for mutual success and creating reframed priorities for all parties. Here’s how it might work in practice: Procurement supports supplier enablement, establishing clear performance management criteria and driving change management processes to confirm that suppliers are fully integrated and aligned with the organization’s strategic objectives. The planning function leverages data and advanced forecasts to refine processes and make informed decisions, verifying that the supply chain is agile and prepared to meet future demands in alignment with supplier capabilities. Suppliers actively engage in collaborative planning, innovation and sustainability efforts, becoming key partners in driving the organization’s competitive advantage and shared success.

Sustainability for resiliency

Companies that focus on supplier collaboration strategies can help sustainability remain at the forefront of their entire supplier ecosystems. Improved visibility up and down the value chain ultimately helps bolster resiliency and provides the information needed to help all ecosystem players achieve their sustainability goals. Here is how that might work: Multi-tier traceability enabled by integrative software can support regulatory requirements, mitigate risks and promote sustainability standards. In addition, a global connected ecosystem of diverse partners may serve as a risk reduction mechanism and a competitive and commercial advantage, providing organizations a better understanding of various market segments. Finally, a collaborative supply chain may provide economic and social benefits to communities in which the suppliers operate (e.g., GDP contribution, wages, jobs), including increased operational efficiency and return on investment per dollar spent.

Case in point: A global apparel company collaborated with more than 40 of its suppliers to help identify and implement renewable water and energy-saving measures across several countries. Suppliers coinvested in their suppliers' operations and integrated sustainable materials and processes from the outset, setting a new standard for eco-friendly products. Through this collaborative effort, each supplier contributed its expertise, resulting in innovative products that are not only sustainable but also cost effective and market ready.

Digitalization for synchronization

Creating a digital ecosystem helps integrate key suppliers, supports the organization in becoming a customer of choice and can enable the free flow of information that differentiates leading-class supply chains. By integrating systems, core suppliers can create a unified network that allows for real-time inventory tracking and demand forecasting, reducing overproduction and waste. This interconnectedness verifies that all suppliers are working from the same set of data, leading to more synchronized production schedules and a more resilient supply chain. 

Some examples of digitalization include:

• Automation of transactional steps that allow the procurement function to focus on value-added activities, reducing organizations’ cost to serve to become suppliers’ customer of choice

• The implementation of solutions that support continuous collaborative planning, where members of the network focus on their own business optimization while understanding the impact to customers and suppliers 

• The use of artificial intelligence to unlock the strategic talent of the workforce, leading to improved employee and supplier experiences.