December 27, 2023 | Procurement Strategy
Despite some regional resistance, the global economic outlook does not look promising. Subdued demand for raw materials, components and commodities continues to create excess vendor capacity across global supply chains, according to the GEP Global Supply Chain Volatility Index data for November.
How can businesses survive this downturn?
Uncertain economic conditions such as these have necessitated some key changes in the ways businesses operate, with leadership focus shifting from cost monitoring to risk management, demand forecasting and sustainable value creation.
“It’s traditionally been about cost and value, but the value you get from risk management, supplier diversity and sustainability has become more and more key — especially for global companies with public commitments,” says the director of global supply management at an engineering company in this GEP and Procurement Leaders report.
As businesses look to build agility and resiliency, particularly in supply chains, there is one aspect of their operations that must be a top priority – relationships with suppliers.
In many ways, their ability to succeed in a fast-changing business landscape depends on how closely they can work with their suppliers.
Whether it’s about ensuring supply of critical components, designing new and innovative products, maintaining quality standards, monitoring emissions, lowering energy consumption or implementing sustainable practices, suppliers are involved in all strategic objectives.
The bottom line is that businesses need to strengthen their supplier relationships. This also means that procurement needs to play an increasingly crucial role in the success of the business.
To thrive in today’s fast-changing environment, procurement organizations need to identify their key suppliers and treat them as strategic business partners. Such transitioning from supplier relationship to partnership can occur in phases.
In the first phase, a business must focus on cultural alignment with suppliers. Both parties need to invest time and understand the other’s approach and ideology. The partnership must bring the two corporate cultures together and understand what each party brings to the table. The cultures of both parties must be complementary.
In the second phase, both parties must clearly understand the goals of the partnership. What are both the businesses looking to achieve and how? Do they have the technology and infrastructure in place? And have they decided the parameters to measure the performance and success of their partnership?
Businesses also need to review their criteria for supplier collaboration. According to research by Procurement Leaders, businesses need to determine the supplier’s:
Face-to-face workshops with respective leaders can be an effective way to share motivations and partnership principles. Continual self-examination and eye-level conversations can help to address difficult topics, says Joel Johnson, vice president of consulting at GEP.
In general, there is a need to have frequent interactions with suppliers – not necessarily for specific business agendas. The objective of these interactions is to build a platform to strengthen the partnership.
“When was the last time you established a forum to discuss challenges with a supplier that wasn’t a reaction to some issue or disruption? Carve out time and space for these types of conversations. Performance surveys are fine, but the true partnership approach is about perspectives from both sides, with both perspectives taken seriously,” says Johnson.
It is also important for both parties to understand each other’s capabilities. Suppliers with deep knowledge of the business organization and objectives can truly act as strategic business partners.
Finally, both parties should be flexible and have the capability to quickly adapt to changing conditions. This also requires a business to structure supplier relationships with a sufficient degree of contractual and commercial flexibility.