Supply chain disruptions. They’re here to stay. Over the next ten years, disruptions could cost companies half a year’s profits or more, and for most, a single prolonged shock to production could wipe out 30-50% of annual earnings before interest, taxes, and depreciation. Disruptions are often unpredictable and can come from just about anywhere: port closures, transport delays, war, political strife, or a worldwide invisible crisis.
In 2023, it’s time to focus on building resilience into your supply chain, and a great place to start is with the human side. Look to your supplier relationships as step one in reducing risk and vulnerability. Suppliers are often overlooked in continuous improvement efforts, but along with buyers, they are on the front lines. They’re well-acquainted with the day-to-day processes, and they have first line of sight into challenges that arise.
Start by providing them with collaboration tools that give everyone involved accurate, real-time visibility into every last PO line change and communique that passes between them. With the right tools, you can place full trust in your buying team to think strategically and leverage supplier relationships to build predictability and strength in the face of so many disruptions.
Based on our experience working with procurement pros all over the world, we’ve put together seven strategies for getting the most out of your supplier relationships and strengthening the resilience of your supply chain. You’ll probably want to bookmark this page.
1. Eliminate single points of failure.
This is the biggest step toward mitigating risk. It’s absolutely critical to have more than one qualified supplier who can pick up the slack if another can’t deliver on time. Make sure to diversify your supplier-base geographically so that they are not affected by the same regional disruptions. If your core supplier base looks risky, increase collaboration with other suppliers so you have additional options.
As one example, one company’s assessment showed that they had a sole supplier for a special grade part that if disrupted would pose an unreasonable risk to their business. They invested in propping up an alternate supplier even though their initial pricing was not competitive with their original supplier.
2. Develop deep relationships.
Relationships rise above the noise of disruptions. Faced with a crisis (as we all eventually are), it’s easy to focus only on the dollar signs, but that’s only one of the important parts. Procurement leaders say that when tackling a disruption, relationships with suppliers are what really make the difference. A deep relationship with suppliers will mean you keep each other in the know and go the extra mile in a reciprocative way in times of need.
3. Get shared forward-looking visibility you can trust.
Forward-looking visibility is step one toward alignment. Really it’s a prerequisite. When buyers and suppliers share a view of future forecasts, planned orders, every PO, line change, shipments, receipts and payment approvals everyone can make smarter and more timely decisions.
4. Employ predictive insights.
Predictive insights offer early warnings based on past behavior patterns and leading indicators. Now, cloud SaaS platforms are able to observe a large number of purchasing interactions from start to end outcomes and we can use the data to train AI/ML algorithms to make at least directional predictions. With forewarning, teams can proactively take action to eliminate problems before they have a material impact. Adopt a solution that identifies response patterns and flags potential high risks.
5. Establish mutual accountability.
This may seem like a no-brainer, but if you’re like a lot of procurement pros, it may also seem daunting. You’ll need real-time information everyone can rely on, and you’ll need clear, centralized communication everyone can see. Without a digital collaboration tool, true two-way accountability is nearly impossible.
Intelligent Response Tactics
6. Orchestrate buyer and supplier actions intelligently.
Once you have real-time visibility, it’s time to work together. You’ll need more than data entry and exchange; true collaboration requires more. It’s about smart actions via continuous Observe-Orient-Decide-Act loops at every step for each buyer and supplier. A true collaboration solution does all the heavy lifting to observe every update and orient the user to the most critical ones. It also provides contextual decision support, propagating users’ decisions to provide full visibility, including needed actions.
7. Develop continuous alignment as changes happen on both sides.
Resiliency is about how quickly you can get to alignment because disconnects will always happen. All exceptions are not made equal; some are more critical than others. You need a way to employ visibility and align with suppliers in real time so buyers can focus on the exceptions that matter most to both sides. Continuous alignment sets these priorities based which are most critical to the buyer, surfaces the exceptions, and resolves them.
The Way Forward
Disruptions often send us into firefighting mode, and when they compound (which they often do), that firefighting mode might seem like a permanent state. Supplier relationships can go far in establishing a proactive workflow that lets them work strategically with buyers to identify potential problems, deliver on time more often, and eliminate hours of manual clerical work. Focus on the people; profitability will follow.