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How to Optimize Your Indirect Supply Chain for Long Term Success

Michael Wilson | Apr 26, 2017

Although methods such as strategic sourcing have improved indirect supply chain performance, one could argue that these methods take a short-term approach.  A long-term approach ...

Although methods such as strategic sourcing have improved indirect supply chain performance, one could argue that these methods take a short-term approach.  A long-term approach involves recognizing how the values of indirect suppliers align with stakeholder values.  The emphasis on values leads to greater collaboration and the capability to quickly respond to challenges and interruptions.  Aligning values occurs through transparency that depends on a common view of preferences, best practices, benchmarking, and key performance indicators.

Together, these 4 methods will help you to achieve long term supply chain optimization:

1. Achieve a Common View of Preferences

Building a supply chain relationship based on values and preferences requires that all parties openly communicate about strategies, desired outcomes, challenges, capabilities, and transaction costs.  Having a shared definition of quality plus mutual trust in decisions and methods allows companies to work together to address cost drivers and gain sustainability.  

Relationship building in this way establishes the foundation for the collaborative use of information, demand data, and process standardization.  From there, the indirect supply chain can seek methods for reducing unit costs or increasing efficiencies through process automation.  For example, a shared view of sustainability may lead to cost reductions built through joint preferences for the use of materials or services that contribute to energy savings. 

2. Define Best Practices Throughout the Supply Chain Relationship

Relationship building continues through selecting best practices that illustrate transparency as well as a commitment to quality.  Indirect supply chain operations should have a clear, centralized organizational structure that provides regional coverage as well as proximity to demand stakeholders.  Transparency occurs through centralized and standardized information technology technologies that aggregate spend and savings data.  The commitment to quality becomes apparent through standardized operating processes and policies that govern negotiations and contract structures throughout the entire process. This in turn will also help with supply chain optimization efforts.

3. Apply Benchmarking

A transparent approach to indirect supply chain management assures customers that correct, well-thought decisions occur every day.  The use of a scorecard based on industry-wide and company-wide benchmarks and data tracks the performance of methods that the supply chain uses to make and support decisions.   

In addition, the scorecard illustrates information important to the indirect supply chain, demand customers, and consumers. Benchmark data may speak to conformance with government regulations, show progress on identified audit issues, measure performance against certification standards, compare results with national and international standards, and provide a snapshot of risk management.

4. Learn From Key Performance Indicators 

Regular assessments of key performance indicators (KPIs) provide executive leadership with meaningful information used for making better supply chain optimization decisions.  KPIs also drive continuous quality improvement in supplier performance and can assist with measuring the effectiveness of processes.  Examples of KPIs for indirect supply chain operations include total indirect procurement volume, total costs, costs per purchase order, preferred supplier coverage, supplier performance, sustainability of the supply chain, and savings.

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