It has been a bruising 12 months for the global supply chain which has seen the flow of goods grind to a halt, logistics chains broken and seemingly stable networks falter amid the chaos.
Suppliers have been among the worst hit. Margins are squeezed and lead times are unpredictable, while the ability to physically supply is severely hampered by safety measures design to stop the spread of COVID-19. Many have gone out of business, and many more will follow.
This presents procurement professionals with a unique set of problems, a set of problems that requires balancing the needs of the business with managing suppliers through a crisis. Both are deserving of equal consideration, and as our two experts attest, necessary if we’re to navigate the storm.
In increasingly uncertain times, SRM should be a focal point of procurement’s activities, according to Dr Thierry Fausten a senior supply chain consultant – and for that you need crystal clear communication.
“Both risk mitigation and supply network innovation are dependent on clear and continued dialogue between buyers and suppliers as both look to consolidate and recover,” Dr Fausten says. “SRM is a key contributor to risk mitigation in b2b relationships. This is true for goods and services.”
“Most firms see SRM as performance management, which de-facto has a risk mitigation dimension. Delivery performance, based on the trio of on time, in full, on quality, criteria, is still at the heart of what is construed as SRM.”
He adds that SRM has traditionally focussed on past events rather than on fostering communication and information exchange, but that it would be a focus on the latter that will mitigate incidents and their consequences moving forward. He also believes it is the key to becoming a customer of choice, which facilitates greater access to the supply network and to future innovation – and safeguard the future of both parties.
“The most effective way to be the customer of choice requires first and foremost communication: to show openness to proposals and ideas, and to express expectations, business development paths, the way of the future has envisioned by the company management.”
He added that technology would inevitably be an enabler because it facilitates the exchange of information between parties, while outlining different requirements that stem from the possible futures of the organisation.
“What drives SRM currently” he adds, “depends on the maturity of the SRM programme between the organisations considered. Most firms stick to transactional level SRM. At the moment they are purely focused on managing day-to-day business and this will continue until the shambles created by the pandemic clears.”
Who exactly are you working with?
“It may sound basic, but it’s important to understand your supply chain,” says Procurement Consultant Natalie Adotevi. “You would be really surprised, but a lot of companies don’t actually know where they’re spending their money and who their suppliers are. Until you know that, how are you going to work properly with them? Especially in a pandemic”
She adds that it’s surprisingly common for procurement organisations to have little or no understanding of their supplier’s geography, financial status or exposure to risk via their suppliers (your tier two). Under normal circumstances, that’s negligent but in the current climate it is close to suicidal given the risk it exposes the organisation to.
“A lot of companies will get burned by this and a lot of companies will have already been badly burned. I’m sure many will have supply chains that start in China – either for parts or materials – that will have lost their supplies to bottlenecks or port closures.
“You really have to understand the depth and the breadth of your entire supply chain – not just your immediate suppliers, not just your tier ones – but your tier twos and threes as well. If you’re not doing that, then you need to ask yourself, what’s important?”
Can you do anything for them?
A lot of suppliers will have gone out of business during the pandemic and many more will sadly follow. It’s a situation Adotevi warns procurement to be aware of. There’s no getting away from the fact that suppliers are struggling as a result of the pandemic. Margins are squeezed, lead times are stretched and the logistics chain is stunted. It’s a stifling situation that has left many vendors strapped for cash and in need of way out.
But while you might not relish the idea of bailing yours out financially, the idea of going to tender or renegotiating your contracts is equally unappealing – as is the prospect of losing them entirely. So how can we help our suppliers through the crisis and in so doing protect ourselves?
“I think there’s a big piece around understanding your supply chain from that perspective,” she adds. “How critical are they to you organisation? What are their financials like? If they take a hit, will they be able to function tomorrow? Will you as an organisation be able to inject some cash into their business to keep them liquid?”
Working hand-in-hand with struggling suppliers will be crucial in that respect, especially if they are to survive, she says. It will force creative thinking, closer collaboration and inefficiencies – all aspects that echo what Dr Fausten advised.
“And then I think once you do that you need to be able to engage in a really collaborative, transparent discussion with your suppliers. And when I say that, because obviously it’s difficult times for everyone, and I think you want to really understand what’s happening in their organisations, as opposed to what you’re trying to achieve just for yours.
“So you want to be able to do that and also work hand-in-hand with them to see if there is a way of mutually supporting one another. What are the key initiatives that we can implement quickly? Remove waste, bring in efficiencies, accelerate some of the cost initiatives we may have in the past.” And those type of things, just to accelerate some of the initiatives.
“I think that should be part of the ongoing plan. In fact, it’s going to be entirely necessary as we negotiate our way out of this crisis.”