May 08, 2023 | Supplier Management Strategy
The criticality of effective supplier management becomes clear when we look at how retailer Bed, Bath & Beyond went from once being the largest home goods retailer in the U.S. to filing for bankruptcy.
Following the pandemic, the company struggled with high inventory costs and less consumer spending. To revive the company, it moved the strategy from selling national brands to selling private-label brands. This, however, resulted in another set of problems: longer lead times to produce and ship to stores.
The company’s worsening cash flow situation led to strained vendor credit relationships, which in turn led to lack of inventory, according to its bankruptcy court papers. When the share prices began to fall, Bed, Bath & Beyond began an accelerated share repurchase program. This created further trouble with the suppliers, who feared the company wouldn’t have enough cash to pay them in full, and they scaled back supplies.
They feared the company wouldn’t have enough cash to pay them in full and scaled back supplies. Though the retailer worked with suppliers and vendors to ensure its customers had access to the brands, nothing seems to have worked in the end.
This bankruptcy holds several lessons for other businesses in how they nurture and collaborate with their vendors so that in hard times, the vendors don’t abandon them.
Relying heavily on a single supplier can expose your company to significant risks, more so when times are tough. Diversifying your supplier base not only reduces the risk of disruption but also increases your negotiation power.
Regularly evaluate the performance of your suppliers to identify any potential risks or areas for improvement. Conduct supplier audits, review key performance indicators (KPIs), and establish ongoing communication channels to address any issues proactively. Monitoring supplier performance enables you to make informed decisions and maintain a resilient supply chain.
Ensuring financial stability or communicating the message that you will honor your payments is crucial for maintaining healthy supplier relationships. Prioritize supplier payments to prevent delays that could strain relationships and lead to a loss of trust. Establish clear payment terms with your suppliers and adhere to them consistently, demonstrating your commitment to maintaining strong partnerships.
This approach helps build goodwill and fosters a collaborative atmosphere in managing supply chain challenges.
Open communication and trust are the cornerstones of strong supplier relationships. Share information about your business goals, strategies, and potential challenges with your suppliers, and actively address their concerns. Investing in your suppliers' development can also improve their performance and deepen your relationship. Offer training, share best practices, or provide access to resources that support their growth. By fostering strong relationships and helping suppliers succeed, you create a collaborative environment where both parties benefit.
Transparency is key to maintaining healthy supplier relationships. Being open about your financial situation, potential risks and business challenges helps suppliers understand your position and work with you to find solutions, rather than cutting ties abruptly. Continuously evaluate and update your supplier management practices, learning from industry best practices and your own experiences. Regular reviews help you stay ahead of potential issues, ensuring a resilient and efficient supply chain that supports your business growth.
To avoid alienating suppliers and vendors even as your company faces financial troubles (as we seen saw during the pandemic, besides the Bath, Bed Bath & Beyond case), it is important to continue focusing on prioritizingprioritize making timely vendor payments, diversifying and monitoring suppliers, developing contingency plans, and fostering strong relationships with suppliers. Companies should also leverage the latest technology and innovation to optimize their procurement and supply chain processes and manage suppliers more effectively.