An effective supply chain has three key elements: market exposure to products and services, direct collaboration between buyers and suppliers, and cost efficiency. Managing these elements in a traditional supply chain model is not easy. Buyers have to actively manage relationships with a variety of suppliers and often do not have clear visibility when new products or services are offered by new suppliers. Buyers fall into a one-sided Supplier Management rhythm; working the phones and email with ‘who they know,’ as opposed to suppliers who provide the best products or services at the best price.
Today’s cloud-based platforms eliminate the old-fashioned routine. For example, consider Airbnb’s platform. The online dashboard creates value by enabling direct collaboration between home owners and renters. Cloud-based supply chain models work in the same way. Buyers use the platform space to efficiently work with a broad range of suppliers, who in turn gain access to buyers in real-time.
Platforms are creating value for both buyers and suppliers by:
- Increasing exposure and reducing prices
Platform business models provide a space for consumers to openly interact with producers, and vice versa. Likewise, a good supply chain platform will provide this space, and it will also offer incentives for becoming a member. As more members join the platform, seller presence becomes visible to an increased number of buyers, heightening product exposure. Then, as the network effect kicks in, elevated purchasing traffic drives down the cost of the product, allowing purchasers to obtain products at a lower cost.
- Discontinuing Service Level Agreements
Platforms define base compliance standards, reducing the need to manage SLAs. Standards for doing business are built within the platform itself and platform members agree to these terms in order to participate. Cloud-based supply chain platforms hold both sides accountable for meeting standards relating to shipping time, response time, annual fees, payment methods, refunds, etc. Terms and conditions will vary depending on the platform, so it is important for potential participants to consider which guidelines are important and correspond with their business strategy.
- Granting access to real-time information
Cloud-based supply chain management platforms place an emphasis on needs planning and scheduling. Buyers can upload inventory with pre-defined depletion notifications, allowing suppliers to bid on replacements in near real-time. Both sides have the ability to respond quickly to changes in the supply chain. If a shipment is late, suppliers can provide up-to-date tracking information. If a shipment is extremely late, buyers can access the platform to identify what is available and when.
- Eliminating approved vendor lists
Because supply chain platforms ensure procurement from only ‘approved’ suppliers, the practice of managing an approved vendors list becomes obsolete. Previously, buyers invested a great deal of research and vetting into determining which suppliers were approved. Now, buyers can use platforms to filter suppliers by established company protocols and purchasing criteria (e.g., product quality, timely delivery, and supplier ratings). Most importantly, existing suppliers can be by-passed or banned based on real-time evaluation of performance.
- Making it easy to connect with and review new partnerships
Platform business models make it easy to shop around for potential suppliers and partners by providing direct feedback from other platform members. Similar to checking Yelp for restaurant reviews, business partners evaluate buyers and suppliers based on their experience. When your long-time pipe supplier is out of stock, there is no need to wait for inventory to be replenished. Instead, users can search for comparable products on the platform and review supplier ratings to make the best decision for current purchasing needs. References and reviews are beneficial for users looking to establish new connections or alternative options. They also help instill confidence in transacting with unfamiliar customers and suppliers.
Cloud-based platforms are changing supply chain procurement strategies for the better. With increased market exposure, easily realized cost efficiencies, and an environment for direct collaboration, platform business models are equipping buyers and suppliers with the tools necessary to succeed in supply chain management. Trenegy helps companies identify innovative solutions that streamline the procurement process. To learn more, contact us.