Maintaining Strong Supplier Rapport During Disruptive Times
Published on Jun 13, 2022
Managing the suppliers that provide you with your raw materials sounds easy enough. Companies tend to choose suppliers that are easy to work with and cost-efficient. However, like most modern business practices, things have become much more complicated thanks to the global economy, technology growth, and the pandemic's disruptive impact.
Supplier rapport and management became critical to achieving and maintaining operational resilience during the pandemic. The average revenue loss for a large company due to disruption in essential services is $182 million a year. Business brand also suffers: 83% of companies report reputational damage following a disruption.
According to the Capgemini Research Institute’s Fast Forward report on supply chain resilience:
74% of companies faced shortages in critical parts and materials
74% of companies experienced shipment delays and longer lead times
69% of companies encountered difficulties in planning due to a lack of information from suppliers
69% of companies had trouble scaling production up and down
Deepening relationships with suppliers can be difficult, let alone keeping them accountable when commitments are not met. Here are a few strategies that can help.
Treat your suppliers as the partners they are
Supplier partnerships should be based not just on financial transactions but also on loyalty and mutual trust. Make them feel like a part of your business. A two-way relationship is essential, especially for critical suppliers. Share information about your processes, such as the timing of new products, goods and services you plan to roll out. Providing your suppliers with a bit of context may help them find the best way to get materials sourced to you in timeframes that work best for you.
Suppliers can help you cut costs and add efficiencies in this way. Additionally, this helps them to better prepare, securing more business flowing their direction. This cyclical pattern is the heart of every strong business relationship.
Working together to grow supply while keeping costs low is a win-win for both parties.
Deepen rapport through long-term agreements
Long-term contracts ensure uninterrupted supplies even when industry disruptions occur. It also drives growth by creating more opportunities for sustainability and product innovation.
Carefully consider contract clauses
In cases of risk events, having specific clauses in your contracts can save the day.
For example, including a “first priority supplies” clause can ensure continuity in the face of disruption. Penalty clauses regarding intellectual property, confidentiality, performance expectation, and indemnification can motivate suppliers to be extra careful and focused on providing optimal service.
However, the same is true in reverse as well. Check the contract clauses carefully as these could be game changers, and not always in a positive light, for your business.
Develop a performance scorecard
If purchasing from a supplier regularly, a robust contract management process is a must. It’s a good idea to create a flowchart to explain the process to everyone on your team so everyone can more easily recognize when something goes awry.
By creating a performance scorecard based on historical KPIs you want to meet, you are able to establish clear expectations for your suppliers and can regularly track their performance. Basing this on your own KPIs allows you to better align Having an objective assessment regarding the financial health of suppliers is essential to this process, as is being able to assess operational parameters like schedule adherence and product quality.
Review and assess your suppliers
As pandemic uncertainties, adverse weather conditions, geopolitical turmoil, and similar events continue, supplies such as raw material procurement becomes the weakest link. To better manage key-spend items, regularly assess your supplier base based on business priorities.
Request business continuity documents from the suppliers your company relies on the most.
Assess supplier susceptibility in multiple event scenarios by engaging with them and providing a self-assessment questionnaire or similar method. Score your suppliers based on their business continuity/disaster recovery planning, physical recovery, approach to testing and exercising, and compliance with ISO standards.
Check with each supplier annually to ensure they continue to exercise, test, and adapt their plans based on changing threats and needs.
With so much disruption, it can also be a good idea to exceed immediate inventory needs where possible to have time to react and work with your suppliers in the case of a future crisis. It may be time to look into employing a Just In Case (JIC) strategy.
Above All, Be Strategic
During the pandemic, companies that focused on strategic sourcing and managing strategic supplier relationships could weather the storms much better than those that did not.
More than half of the companies Capgemini surveyed said that recovery took three to six months, and another 13% said it would take six to 12 months for them to recover. Companies of all sizes and industries would do well to heed.
Remember that every penny saved from efficient supplier management goes straight to the profit line. The savings in time, as well as cost, cannot be underestimated.