A recent survey by the Institute for Supply Management1 revealed that 97 percent of companies representing more than 600 procurement professionals have suffered some sort of supply chain disruption to their organizations due to the coronavirus (COVID-19) pandemic. In procurement, our suppliers are as important as we are. Therefore, what steps can we take? How might we improve our perspective of managing supplier relationships and preventing risk exposures?
We must create stronger supplier relationships strategically, and this requires us to reassess our supply lines continuously. So, we might ask, why has it taken the coronavirus pandemic to expose the strengths, weaknesses and opportunities to handle supplier relationships? It matters that our supply chain risk exposures and plans to mitigate risks directly trigger our supplier relationships.
I’ve heard it all -- from the most tactical and unprepared approach -- to some of the most innovative strategies. The latter has proven to me how supplier relationships become the essential foundation of a nimble procurement organization — even beyond what could be considered agile. So why do some organizations drag their feet on this issue, failing to realize how a pandemic can and has destroyed businesses?
The ill-advised approach does not work
I spoke with one company that requested its suppliers to reduce pricing and partner with them on handling COVID-19 that was quickly impacting their operations. But that approach is ill-advised, and it was shocking for me to realize that this wasn’t the only company considering this quick fix strategy — it seems to be a prevalent “memo” (blanket statement) for many companies.
Issuing a blanket statement to the entire supply line will backfire, because a blanket statement ignores suppliers’ unique circumstances and makes the process extremely impersonal. Such a tactic prevents the possibility of managing results and providing accountability. Suppliers that comply will likely ask for something in return -- which comes at a cost. Or suppliers may simply say “no” and the company might end up empty handed. In that case, no one wins.
A global pandemic — or any other major disruption — presents you the opportunity -- or even forces you -- to reevaluate all your supplier relationships, processes and/or possibly your entire organization. But how your company does this will have a lasting impact on its survival. Simply put, the way organizations decide to act, or react, reveals their level of preparedness as well as their ability to create and generate sustainable value with their suppliers and extended ecosystems.
OK, maybe you are agile, but are you ready?
While agility can be synonymous with nimbleness, there is one key difference: “readiness.” In many cases, the difference resides in how agility is interpreted and embedded as part of the culture of the organization.
An agile company can quickly react to stimuli (vis-à-vis a pandemic) based on its current capabilities and what it already knows. A nimble organization lives in a constant state of preparedness, continually reevaluating the validity of what it knows. Its strategic position and decision process is also heavily influenced by what it doesn’t demand or understand well enough.
The difference lies in whether a company can adapt and survive to keep “business as usual” or use new information (or even use disruptive events) as springboards to thrive with more resilient models -- thereby building a competitive advantage.
Case study: alternative packaging - example of a nimble and ‘ready’ organization
Due to the pandemic, a well-known consumer products brand experienced a surge in demand for one of its snack products. This created a packaging challenge: The company could not keep up with the supply of packaging required to meet the product demand. Fortunately, the company had already been working with suppliers regarding alternative packaging, which, while more expensive, was eco-friendly and more sustainable.
Because of this, the company did not have to adapt to new packaging or urgently challenge its suppliers to supply it. The solution already existed, and it was simply a matter of testing and deploying the product. The company used this crisis as an opportunity to launch a pilot and enhance a product, not just retain pre-crisis sales levels. That is being nimble.
Check your supply base
The key to successfully face a crisis is your supply base. Suppliers are inherently a source of data and information that, when enabled properly, gives you heads up knowledge that might otherwise not be available. The data can also validate, discredit or complement facts companies believe to be true.
Again, herein lies the difference between agility and nimbleness. Because suppliers assess and manage risk differently than those of us in procurement, they can expose us to risk (directly or indirectly) and mitigate it for us at the same time. With that in mind, the way we manage our relations with suppliers becomes a reflection on how we manage risk and enable our strategic goals.
Creating stronger supplier relationships is a strategic and delicate effort that warrants ongoing reassessment. So, again, why should we wait for a pandemic-like event to trigger a reevaluation that we should be doing continuously anyway?
Let’s consider, instead, providing a true ecosystem, right now, within procurement in which we assess supplier relationships and manage sustainably -- strategically, consistently, and collaboratively. There is a major difference between companies that are forced to take quick action and those that prepare ahead and are ready to face the unexpected.
In supply management, being prepared means knowing the supply base as well as we know our own strengths and risk exposure. Ultimately, this becomes knowledge that we can act upon to boost performance while reducing operational slowdowns. Diligent supplier relationship management is the difference between mere survival and measurable growth, between being a performer and being a disruptor. Simply put, this is high performance within the purest form of value creation.
No one succeeds alone, and in procurement, that means suppliers are as important to our success as we are ourselves.
- Institute for Supply Management® See also CISION PR Newswire article titled COVID-19 Survey Round 3 Supply Chain Disruptions Continue Globally
ABOUT THE AUTHOR
Diego De la Garza is a three-time Supply and Demand Chain Executive Pro to Know, and winner of the Council for Supply Management’s 2016 Emerging Leader Award. At Corcentric, Diego applies more than a decade of insight and experience to design and implement a holistic service offering encompassing full-suite solutions and comprehensive advisory support. He has delivered thought leadership presentations across North America and Europe and addressed topics including Nearshoring, Risk Mitigation, Procurement Transformation, and empowering emerging professionals.
CORCENTRIC is a leading provider of procurement and finance solutions that transform how companies purchase, pay, and get paid. Determine's mission is to provide industry-leading cloud solutions to maximize its customers' visibility and financial return from their spend, supplier and contractual data.
DETERMINE, a Corcentric company, provides industry-leading Cloud solutions to maximize its customers' visibility and financial return from their spend, supplier and contractual data.
Content reflects views and opinions of the author and do not necessarily reflect the views and opinions of World Commerce & Contracting.