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The job of managing suppliers in a global manufacturing or distribution organization just keeps getting tougher.
It’s hard enough to qualify and keep tabs on multiple tiers of suppliers. Now add in a slew of new regulatory requirements, such as the U.S. Securities and Exchange Commission’s disclosure rule on conflict minerals in manufactured goods, and you’ve got an exceedingly complex challenge on your hands.
Atlanta-based HD Supply knows how difficult the task can be. One of North America’s largest industrial distributors, it offers a menu of approximately one million SKUs, serving half a million professional accounts in such sectors as utilities, construction, hospitality and equipment maintenance and repair. Operations are in more than 600 locations, across 46 U.S. states and nine Canadian provinces.
HD Supply had long emphasized the need for good supplier governance. Rapid growth in sales, however, was making the old processes harder to sustain. The company found itself inundated by paperwork related to supplier selection, onboarding and factory audits. Managers were drowning in a sea of e-mails.
The company needed a more coherent database of suppliers, along with a streamlined, centralized process for managing them. Scalability was key. “It was extremely important to have something that would work for us as we grew,” says Susan Van Houten, senior director of global sourcing. “You’ve got to be able to support the business today, and be ready for the business tomorrow.”
HD Supply embarked on a search for a software system that could manage supplier governance and onboarding in the modern age. It narrowed down the field to four vendors, then two, then one: MetricStream Inc. Van Houten says it had the best modules for tracking suppliers, factories and individual products. The system, she adds, “was very user-friendly.”
MetricStream chief operating officer Gaurav Kapoor says the company has invested heavily in supplier governance and compliance technology over the past few years. He identifies three big trends that have prompted companies in general to pay more attention to that space: the recession, which forced a rationalization of supply chains; globalization, which created a need for risk management overseeing multiple supplier tiers, and increased regulation, in such areas as conflict minerals and the environment.
The First Step
Step one in implementation was an extensive sharing of knowledge between HD Supply and MetricStream. “We needed to make sure that MetricStream understood what we were doing, why and how,” says Van Houten. So the company kicked off the project with a week of intense communication, involving internal managers, users and I.T. staff, alongside MetricStream’s project team. The parties would continue to meet twice a week throughout the development process.
Van Houten attributes the success of the project in large part to that close level of cooperation. “We were very intertwined in the goal of getting the system to work,” she says. From the start, HD Supply adopted a “train the trainers” approach to educate internal staff on the intricacies of the software.
Companies that implement complex systems such as that of MetricStream are not always clear at the outset about what they want, Kapoor says. Not so with HD Supply. It possessed a solid understanding of its requirements, and what it sought to achieve from the deployment.
Even so, full implementation took about a year. HD Supply’s need for a degree of customization lengthened the engagement somewhat, says Van Houten, who expected things “to go a little faster.” In particular, the company desired a new system that would track suppliers throughout the process of selection, not just initial onboarding. “We wanted to make sure that we had what we needed, and that the solution would work for our customers,” she says.
More rapid was installation of the brand new module that enabled the disclosure of any conflict minerals – tin, tantalum, tungsten and gold from certain mines in the Democratic Republic of the Congo – in HD Supply’s extensive product base. That was about a 45-day process. “It was plug and play, more or less,” Van Houten says.
The MetricStream system provides a single point for tracking and managing suppliers. Users can easily see the location of vendors and factories, with detailed information about contacts, qualifications and audit history. The system also automates the selection of individual SKUs to be quoted, then sends out the quotes and calculates landed cost.
With the selection of each new supplier, HD Supply can undertake assessments of multiple factories. The task includes details such as quality and commercial risk audits, product testing and the supplier’s status in the Customs-Trade Partnership Against Terrorism (C-TPAT). In the process, the company can assess the impact of both suppliers and products on critical environment, health and safety issues.
Scoring the Audits
Each factory is given an audit score, which determines the frequency of future audits. Color-coded spreadsheets lay out the schedule, showing which factories are due for examinations.
The system also is available to third-party product testers, who enter their findings into the central repository, at which point all relevant parties are automatically alerted. Moreover, the attributes of each SKU are linked to the applicable regulatory certifications and standards, so that HD Supply can easily view their certification status.
HD Supply has reaped significant benefits in the two years since the system has been up and running. “We have really streamlined and automated our supplier-governance system,” says Van Houten. The company can more easily access key supplier information, which is transparent to customers and merchants. Suppliers and factories, for their part, get consistent feedback that allows for tighter compliance with the distributor’s requirements. And HD Supply gets a clear view of the status of all investigations, coupled with the ability to plan audits six to 12 months ahead.
Manual processes have been eliminated, and the volume of e-mails has plunged. Now, the user’s supply-chain team can issue a single, comprehensive e-mail report each day. Managers spend less time searching for the right data. The time involved in tracking and followup has been slashed. And new suppliers are being onboarded more quickly.
Van Houten says the company wants to continue streamlining its supplier-governance workflow, with an eye toward speeding up cycle times. It has added a number of enhancements to the reporting process, to track performance in different ways.
Expect the system to keep pace with new complexities in sourcing and procurement. Kapoor says MetricStream will continue to adjust the application accordingly, emphasizing closer ties with other aspects of supply-chain risk management. “Our entire definition of supplier governance is changing by the year,” he says.
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