Supply chain management is amongst the top 5 business priorities in 2022. Trade tensions, COVID-19 lockdowns, and the closure of the Suez channel have caused unprecedented disruptions. Organisations have been forced to prioritise supply chain management to the top of their business and microeconomic agendas.
We are witnessing disruption to the business world which requires new scientific outlooks. These can be explored when looking at: how to use an innovative blend between crisis management; supplier experience governance; and agility to create flexible but robust supply eco-systems.
Even before the ongoing events in Ukraine, resilience was at the top of supply chain leaders’ agendas. Bracing for impact, supply chains are being reconfigured once more as part of the long road to resilience.
McKinsey and Company discovered the following in their recent study of 12 global disruptions caused by the war:
- Supply chain managers’ priorities had shifted from optimising “just in time” delivery to preparing for “just in case” scenarios. In McKinsey’s June 2021 survey, roughly 60% of managers had increased critical product inventories. A slightly smaller number had switched to dual sourcing of raw materials. By March 2022, 80% of respondents said they had implemented “dual sourcing”. Due to the war, dual sourcing is expected to become even more important.
- Meanwhile, as tensions rise, nearshoring and onshoring are back on the agenda. A new concept: “friendshoring”* has also joined.
- The war is hastening a trend: by 2021, Canada and Mexico will have surpassed China to become the United States’ largest trading partners.
- Another notable trend is moving away from globalisation to regionalisation, according to José Manuel Barroso.
- As a result, supply chains are being reconfigured yet again as part of a long journey toward resilience. Some of the pressure on supply chains may be relieved as most spending shifts from goods to services.
How can CX science contribute to supply chain management?
CX solutions, or in this case, supplier experience solutions, can be employed as effective supply chain management tools. Making the process simple, well-managed, and dependable can go a long way toward alleviating the major pain points. So, how does it work?
Understand supplier needs
To determine the health of supplier interactions, business leaders must put themselves in the shoes of their suppliers. Is the supplier’s experience beneficial? Is it simple and easy?
Supply management should embrace cross-functional collaboration principles and appropriate technology to meet at least the basic supplier needs:
- Timely payments: suppliers who are unable to maintain a healthy cashflow may not be able to replenish stocks, therefore failing to satisfy your business demands.
- Flexible payment arrangements: with the world moving to regionalisation, fragmented SME-led supply chains and spikes in demand, standard 90-day payment terms may not suit all your suppliers. A fair audit of needs and flexible 14-, 30- or 45-day payment terms puts you ahead of the game.
- Trust and commitment from your side: one of the ways to demonstrate this is to have credit available by paying in advance. This will help you place emergency orders and manage previous two needs.
- Effective communication: have a process in place that allows suppliers to plan effectively to satisfy yours and their other customers’ needs. Leaders like Amazon attribute their supplier success to their emphasis on constantly improving communications. This is except for when you joined up need to place emergency orders.
- Regular reviews: many businesses are now embracing the concept of open contracts. These are crafted on the values and principles of Agile Contract Manifesto. At this time of uncertainty, these allow you and your suppliers to review terms & conditions, obligations, and demand in a flexible way.
Treat suppliers as partners
To win the ever-growing competition for best supplier, there is a greater need to shift from static relationship to adaptive partnership. Simply, this means joint ownership over risk driven accountability, and collaborating with suppliers to amend problems that affect your ecosystem.
- Create a ‘we’ mindset – all those in the supply ecosystem should feel connected to, and supported by, everyone else. This could be achieved by formal or informal methods. The ability to create a team ethos with a common goal can be very motivating and beneficial – especially during a crisis.
- Human relationships – as well as operating at organisational level, any supply line has a very influential human to human dimension. Enabling time to build authentic relationships between key personnel can prove invaluable.
- Culture – if creating resilience in the supply line would require employees to think and act differently during a period of unplanned disruption, then this should be recognised and addressed. Solutions can include simple activities built into routine business processes through to scenario-based exercises depending on the need.
- Values – temporary changes to the supply network may mean existing suppliers have to make adaptations, or the introduction of entirely new suppliers. It is important to know how well the values of all parties align and what tolerance there is for these to alter during an emergency. They have the potential to impact on brand reputation or ESG policies. Short-term measures may have to be justified to stakeholders and customers and getting this wrong can create significant risk.
- Assumptions – many areas of business will, by necessity, incorporate a mixture of knowledge and assumptions. Often the assumptions represent a low risk. In an emergency, their effect can be amplified and create critical danger. It is worth mapping the assumptions within a supply network, and identifying which ones have the potential to create a point of failure during a crisis.
“A key area of focus is the symbiotic relationship between buyer and supplier. By proactively addressing the supplier experience, businesses can benefit from even more than increased resiliency. They also can leverage supplier expertise to identify opportunities and enhance efficiency. Additionally, when buyers and suppliers align on shared priorities, this enables collaboration and knowledge-sharing. This will improve product and service innovations together.” – Sean Thompson (executive vice president and procurement solutions for enterprise software firm SAP).
How are healthy supplier relationships beneficial for your business?
Supplier partnerships built on trust and accountability, like any other business, generate a highly productive and enjoyable experience for both the firm and the supplier. There are various actions that a business can take to establish a trustworthy alliance.
They can improve product performance
Creating effective listening and knowledge sharing mechanisms can significantly contribute to product and service insights, thus generating competitive advantages.
Helps to manage customer pain points
Enterprise software firm SAP polled 1,000 U.S. consumers in February 2021 for their perspective on the greatest supply chain “pain points” one year into the Covid-19 pandemic. Last year, 63% of consumers struggled to find a place to buy toilet paper. The shelves are now stocked, but the effects on the broader supply chain will last. 35% of consumers report that their favourite grocers and retailers are still dealing with out-of-stock issues.
The survey also found that 70% of consumers switched brands due to supply chain problems. 29% of them did not switch back. A more coherent effort on behalf of the manufacturers, suppliers and retailers could have prevented excessive demand and unnecessary long-lasting effects.
Creates collective social responsibility
Increasingly, suppliers are expected to participate in creating future-proof industries’ environments. This will be completed by working with regulators, the European Union and other regional systems, and other government entities.
More connected and aligned eco-systems demonstrate agility, flexibility, and resilience in the face of many global challenges.
Streamline and standardise communication with flexibility and transparency in mind – to do this you may want to consider a three-step process:
- First would be to segment suppliers by their importance to overall success of the business.
- The second phase would be to design supplier strategies based on data insights and to leverage the information acquired to foster long-term relationships through enhanced trust and simpler communication.
- Finally, by monitoring and identifying pain points and problems early on, SRM (Supplier Relationship Management) strategies can be deployed.
Consider a no-barrier approach when all your suppliers collaborate
A common challenge is how to encourage a no barrier approach and communication flow in the complex supplier chain landscape. We see two key barriers to activate this approach, namely technology and trust:
- Technology is easier to address with a range of EDI (electronic data interchange) solutions available. Best practice is EDI-as-a-Service which is cloud-based and embraces an outcome-oriented approach with integrated managed serviced on-demand. The key benefit of EDI-as-a-Service is enhanced visibility across the supply chain that is critical to effective planning and supplier recognition. This capability makes it easier than ever to comprehend supplier contributions and tailor an approach to supplier frontrunners accordingly.
- Given a revolutionary nature of this concept many businesses are cautious of supplier collaborations and lack trust. Evidence suggests, though, that no-barrier approaches lead to: process optimisation; reduced costs; higher margins for all parties; informed supplier strategies; improved deployment; and simplified, partner-led monitoring.
Customer experience (CX) is a lens that helps businesses manage volatility better. CX is not just about managing customers’ expectations or building brand loyalty. It’s about creating value for all stakeholders in a sustainable way. It makes businesses more robust, flexible, and profitable. Organisations need a new way of thinking about managing their business so they can take advantage of unexpected opportunities and reduce risk in uncertain times.
*[“Friendshoring”] Defined by Janet Yellen as a commitment to work with countries that have a “strong adherence to a set of norms and values about how to operate in the global economy”.
This article was co-authored by the founder of SharedAim Ltd, David Wales.