The global value chain continues to be affected by severe disruptions. In addition to the ongoing critical situation, new laws require a high degree of adaptability. Against this background, efficient supplier management is critical to success. We outline the challenges and provide tips for sustainable action.
Supply Chain Act: Legal requirements for companies are rising
On January 1st 2023, the Supply Chain Due Diligence Act will come into force for companies based in Germany with more than 3,000 employees. One year later, organizations with 500 or more employees* will also have to implement the standard. For companies, this means a higher due diligence obligation: They must check where their goods come from, under which conditions they were produced and how severe the ecological footprint will be.
In addition, the European Commission recently passed a draft on an EU supply chain law with even stricter conditions for companies with 500 employees or more. In critical branches such as the textile industry the law shall even apply for companies employing 250 employees* or more, depending on the turnover. Against this backdrop, optimized supplier management is a business-critical factor that management should critically review in a timely manner.
Transparency as the key to efficient supplier management – and more
A transparent supply chain forms the basis for complying with legal requirements and optimizing your own supplier management. Companies that already have transparent processes are at an advantage here. But even companies that are still in the early stages of this development can leverage their potential quickly and easily with the help of specialized SCM software. Because transparency not only facilitates the monitoring of one’s own suppliers, it also has a positive effect on many other areas of the supply chain: After all, it reveals countless optimization opportunities with regard to increased resilience and sustainability within the company’s own supply network.
Supplier management and sustainability go hand in hand
Fears that the pandemic could set back global progress in sustainability have not been confirmed: The “Sustainable Procurement Barometer 2021” conducted by Eco Vadis, the world’s largest provider of sustainability ratings, states: The proportion of companies that consider their sustainability goals to be very important has risen from 25 to currently 63 percent within two years. Sustainability is also becoming an increasingly important factor in supplier management: 69 percent of those surveyed pay attention to the issue of sustainability when selecting new suppliers. Alas, given the challenges outlined above, how can companies make their supplier management future-proof? Digitization plays a significant role in this context.
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Obstacles on the way to efficient supplier management
Digitization has not only saved time and money in procurement in recent years, it is also an important factor for sustainable supplier management.
However, implementation is still slow in practice: according to a 2021 study published by Bearing Point, which surveyed 640 participants worldwide from the areas of purchasing, procurement, supply chain and sustainability, the most common reasons for a slow realization of sustainable supplier management are insufficient training as well as an insufficient budget. The presentation of the financial benefits associated with sustainable supplier management also slows down participants’ efforts.
Solution strategies for an efficient supplier management
Accelerating digital transformation
Anyone considering a change of suppliers often has to invest a lot of time in evaluating new suppliers. Appropriate software solutions help with the audit process, taking into account relevant ISO standards, and reduce the time required as well as the risk of wrong decisions. The software takes over the evaluation of the suppliers and sends the result back to the company within a very short time. Convenient: Companies can also directly take into account the criteria of the future EU supply chain law during the selection process and thus safeguard themselves for the future.
Establishing risk screening and supplier controlling
Risk analyses and early warning systems not only support companies as part of their holistic supply chain risk management, they also help those responsible to identify – and eliminate – weak points in their own supplier network, while the SME Compass, for example, can assist with controlling. The freeware management system from the German Agency for Business and Development helps companies understand and continuously monitor their global supply and value chains for social and environmental risks.
If a person or group is assigned to define the protection rights or establish an effective supplier management system, developments can be monitored more effectively and corrected if necessary. This also ensures that the establishment of sustainable supply chains is appropriately anchored and promoted within the company.
Efficient supplier management
The strategic optimization of supplier management is a challenge that requires a great deal of knowledge and resources. Companies that do not want to embark on this path alone can seek the support of experienced consultants in designing their supply chain management.
With the right tools and measures for long-term monitoring of their own supplier network, companies can prepare for future legal requirements and at the same time ensure more stability and resilience in their supply chain.