Contribution by Jonathan O’Brien – Award Winning Procurement Author
The UK is emerging from the biggest global downturn since the Great Depression of the 1930s. On the global scale, positive signs of growth in some countries contrast with deepening economic and political worry in others. In response to this continued period of change and unrest, businesses have had to adapt to the new economic environment. One of the key changes that smart organisations have made is to transform the way they manage their suppliers.
Increased pressure on margins has meant that suppliers have had to compete harder to survive and marketplace globalisation has afforded buyers greater choice. More potential suppliers provides greater buyer power, right? Indeed it does — but only where we are buying generic products or services and where there are plenty of providers ready and willing to fight to secure our business.
But don’t forget that the recession has taken its toll on our suppliers too, driving many out of business. For those that have survived, the new commercial landscape has also forced them to adapt. Just as companies have scaled back, reduced capacities, stalled expansions, put investment on hold and changed their business model to one that can weather an economic storm, suppliers have too.
If a key supplier that we are dependent on (and cannot easily find an alternative for) has fundamentally changed their business in order to survive, we could be blind to a significant risk to the assurance of supply. Add to this other global concerns, such as environmental events and commodity scarcity, and security of supply may be a problem waiting to happen.
In adverse circumstances that restrict, but do not stop, supply how can we be assured that the supplier will give us priority? Good supply-side risk management can help, but the recession has shown us that, to have real confidence in continuity of supply, we must actively manage our relationship with our most important suppliers.
There are five key considerations for determining where that energy should be directed:
(1) Know who is important to you: Importance is not just about the suppliers that we spend the most with, it is also about those who present the greatest risk to our business. This risk could be in the form of assurance of supply or of brand damage caused as a result of poor practices in the supply chain. Importance is also linked to the nature of our dependence upon suppliers or even where a supplier presents a potential future opportunity. A tiny supplier working on some new ideas might initially appear insignificant but, with help, could provide innovation that would create massive brand value.
We have finite resources which we can only direct in the right way if we know both who is important and what makes them so.
(2)Manage the risk: Supply-side risk management can frequently be neglected. However, if we can accurately evaluate who our key suppliers are, we can precisely focus our efforts on building deeper and more robust relationships with them. A structured risk assessment approach helps to ensure we don’t miss anything.
(3) Understand them: Procurement people are well practiced at understanding what a supplier does, where they are located and who in their organisation does what. Frequently though, knowledge of any given supplier rarely penetrates beyond the veneer the supplier wants to present. Behind the scenes things could be very different — there could be hidden risks and unseen opportunities. To truly understand a supplier, first we need to get close to them and then stay there, investing time to investigate and understand what is really happening.
We then monitor for signs of change that might warrant further checks (e.g. changes in ownership, direction, staffing or general activities). To do this, we need to meet with them, visit them and positively encourage candid feedback and create opportunities for interaction.
(4) Help them to help us: Whilst our competitors are working on the next big thing, so are those suppliers we have in common. Post recession companies need to work harder to differentiate and succeed, which means we must consistently find new ways to gain competitive advantage. Our supply base can help, though such a contribution is not automatic; it instead demands collaboration that must be mutually beneficial.
This can only be achieved by creating and maintaining the right relationship with our most valuable suppliers. This relationship sea change can only be instigated by us — if you wait for your key suppliers to do it you will still be waiting as you watch market share ebb away.
(5) Don’t take them for granted: The buyer mindset of ‘the supplier is always there, and will work on my terms’ is something I see a lot, but for our key suppliers this belief can be misguided. To evolve a traditional supplier relationship to one that delivers proactive innovation and looks for time, quality and cost efficiencies, businesses must truly value their key suppliers and invest necessary time and effort.
Also remember to recognise their value and even something as simple as a “thank you” for going the extra mile makes a real difference.
They say the best lessons are hardest learned — and one key lesson to be learned from the last recession is that we must identify which suppliers are crucial to us. Then we can not only better manage risk, but focus on understanding them and progressively working more closely with those critical few that hold the potential to make a sustainable, game-changing difference to our business.