Lack of digitisation and focus on costs is hindering supplier collaboration

Ivalua has published the findings of a worldwide study of supply chain, procurement, sales and finance business leaders on the current state of collaboration in procurement. The study reveals that a lack of digitisation and a focus on costs is hindering supplier collaboration, with 77% of respondents admitting that cost dominates supplier selection for most sourcing projects, and a further 80% acknowledging they need to accelerate their digitisation of procurement.

The research, conducted by Forrester Consulting and commissioned by Ivalua, found improving collaboration was a priority for 77% of respondents. Respondents identified improving CSR (41%), increasing margins (38%) and accelerating the pace of innovation (36%) as the top opportunities to unlock greater value through supplier collaboration.

The majority of respondents say they have improved collaboration with most strategic suppliers (90%) and their broader supply base (91%) in the last two years. However, there are still a number of areas for improvement. This includes collaboration processes; there was no mechanism in place for many organisations to collaborate effectively with the broader supply base (42%), finance (41%), IT (40%), or their most strategic suppliers (39%). 

The research highlighted notable geographic differences:

• 50% of German business had no processes to collaborate with strategic suppliers, compared to 45% in the US and a third (33%) in the UK
• 48% of US businesses and 44% of German businesses had no processes to collaborate with the broader supply base, compared to a third (33%) of UK businesses
• Just 38% of German business leaders believe that procurement is seen as a key business partner which contributes significant value, compared to 86% in the US and 82% in the UK

“Most procurement departments are taking steps to improve supplier collaboration, but supplier selection is still dominated by cost, and businesses are struggling to work strategically with suppliers,” explained Alex Saric, Smart Procurement Expert at Ivalua. “As firms increasingly rely on suppliers to help them keep up with the growing pace of innovation and to adapt during crises such as COVID-19, they need be building stronger relationships. If organisations don’t establish themselves as a customer of choice now, they will be at a significant competitive disadvantage as in-demand suppliers pick and choose who they work with and prioritize.”

According to the study, respondents believe the most effective ways to improve supplier collaboration are setting up performance goals and KPIs that place greater weight on collaboration (76%), and investing in technology that enables better information sharing with suppliers (63%). The study also surveyed suppliers, of which 88% stated that the main factor that is likely to increase their willingness to collaborate and share innovations with a specific customer was visibility into payments and their timeliness. Digitisation is essential to enabling payment efficiency, transparency and control.

“It’s clear that companies need to digitise procurement processes to enable deeper collaboration across more of their supply base. Doing so will enable them to better unlock innovation from suppliers, ensure supply continuity and better address other strategic priorities,” concluded Saric.