The right suppliers can transform an organization’s performance. Companies that keep their supply bases in sync with the best the market has to offer generate significant competitive advantages. We find that compared to their peers, top performers can achieve cost positions that are 5 to 10 percent lower, with 20 to 50 percent less exposure to key risks such as reliance on single suppliers for critical parts. Cutting-edge supplier capabilities can also help differentiate products, boosting market share.
That synchronization is becoming harder to do, however, in a fast-changing global economy where
companies’ lifespans keep getting shorter and supply-chain disruptions keep happening more often. In this volatile environment, the right suppliers for today may not be right for tomorrow, and companies need the ability to rapidly identify and onboard new supplier partners.
At most organizations, however, hunting for new suppliers is a daunting, manual process. On average, it takes about three months to complete a single supplier search, with a sourcing professional logging more than 40 hours of work—and yet able to consider only a few dozen suppliers from a total population of thousands.
Because of the time and effort required, new-supplier identification is often deprioritized. Instead, companies make do with the suppliers they have kept for decades, eking out small performance improvements while leaving value on the table—and the company still exposed to supply-chain disruptions.
But what if you could search the entire global economy within days to find the right suppliers?
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A smarter supplier search
Today, a better approach to supplier discovery is emerging. A new generation of tools pair human expertise with an artificial-intelligence (AI) algorithm to radically improve the supplier-identification process, scanning millions of suppliers in a fraction of the time.
A category expert describes the desired product, service, or manufacturing capability, together with any constraints, such as location—all in plain language. Frequently refreshed source data for millions of suppliers come from a variety of proprietary, public-source, and commercial databases, some global and some region-specific. The category specialist then iteratively trains a natural-language-processing (NLP) algorithm to comb through the supplier descriptions in the combined data set.
Within a few iterations, the NLP algorithm narrows the list down to a few suppliers that match the sourcing professional’s criteria. This iterative approach allows search tools to operate with unprecedented speed and precision, finding a shortlist of possible suppliers from a database of millions in just a few hours (exhibit).
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The speed of this approach was made apparent in the early weeks of the COVID-19 crisis. A regional government faced bottlenecks in testing capacity due to shortages of critical consumables, including swabs and viral-transport media. The rapid spike in testing demand, driven by the pandemic, had absorbed excess capacity at the organization’s existing local suppliers, forcing procurement personnel to look farther afield.
Using AI, the procurement team was able to identify more than 30 high-potential suppliers around the world in less than a week. Many of those suppliers did not currently produce the exact items the organization needed, but they had similar capabilities. When the team contacted the suppliers on its shortlist, more than 70 percent were able to deliver. New supply agreements were established within two weeks of the start of the search and, within a month, the organization had obtained sufficient material to double its testing capacity. It used the same approach later in the pandemic to secure N95 respirators for medical personnel and frontline staff.
Smart supplier discovery tools aren’t only useful in a crisis. The approach is also changing the way companies develop new products, enter new markets, and continually optimize their supply bases. One manufacturer of fitness equipment, for example, made a strategic decision to add audio and video capabilities to its products. The company knew that customer demand for the features was strong, but it had no prior experience with the technologies and no knowledge of relevant suppliers.
Your first 100 days as CPO
As illustrated in the exhibit, the organization’s procurement team deployed AI to identify almost 90 potential suppliers in just three days, including many from industries that the team had not previously considered—such as suppliers of marine audio equipment. A further review of supplier product ranges and capabilities led to conversations with a shortlist of around a dozen possible partners.
The development of AI-based supplier discovery tools is fundamentally changing the speed at which it is possible to find the right suppliers and optimize a company’s supply base. Purchasing professionals now have the ability to identify the most promising potential partners from millions of candidates in days, giving them the tools to cope with today’s rapidly changing economy. This need for speed will only increase—and the companies that leverage emerging technology to respond will reap the rewards.