Both regular and new supply lines were under stress during the height of the Covid-19 pandemic crisis and procurement managers were working hard to secure vital supply lines whilst simultaneously pausing non-essential supply. Both objectives have benefited directly from strong relationships with vendors, highlighting the increasing importance of proactive SRM – supplier relationship management – as a strategy: Jonathan Dutton urges Supply Clusters members to seize the day on SRM:
Supplier management during the pandemic
During the early stages of the crisis, most procurement people were directly engaged in one of three important activities – either securing vital supply lines, sourcing new requirements or urgently pausing non-operational supply; each as their business needs dictated.
Yet each of these three activities called upon a new level of vendor engagement – even to the point where fast relationship-building substituted for procurement process. Really, supplier relationship management (SRM). Indeed, this crisis has highlighted just how SRM can become a strategy more than a tool; a lesson we should not miss the opportunity to capture.
The truth is that value from a new supplier can be dramatically heightened by good SRM, or significantly lost due to poor SRM, in the delivery period post-contract award:
In this sense, SRM is an investment if it helps to capture added value from suppliers or, at least, prevents value erosion and ensures solid contractual performance.
The benefits of SRM
The benefits of SRM also include greater supply chain resilience – critical during a crisis. In more normal times, things like joint account plans with suppliers can be even more effective than set governance frameworks. Working as a ‘team’ with suppliers often helps achieve goals more than process does. Joint goals drive joint effort, essential if you want to drive the relationship more strategically.
Indeed, becoming a customer of choice is a strategic goal for many astute buyers – and can bring access to scarce resources as a reward. These buyers recognise the “value of being valued” by a key supplier, and just how much a motivated supplier can truly help their client.
Yet, the greatest benefit of SRM is, actually, INNOVATION. For suppliers do not bring you their best innovations, designs, patents or inventions unless they trust you. And that TRUST has to be earnt. With strong SRM almost a prerequisite. Proactive and capable suppliers can bring you competitive advantage from the supply side.
Security of supply
But this crisis has shown us another very clear and present benefit of good SRM. The benefit of security-of-supply.
The best example was early in the pandemic crisis. Throughout our service economy, a wide range of new customers for PPE – personal protective equipment – quickly swamped the market. Existing buyers of PPE also needed more – most obviously the health companies. Yet, very quickly, horror stories abounded of a raft of sourcing issues around PPE including;
- mass shortages
- questionable new suppliers
- substandard equipment
- failed deliveries
- price hikes and surcharges
- bidding wars
- geopolitical tensions
- overwhelmed distributors
- limited air freight capacity
- international shipping (and docking) problems.
Buyers quickly confronted the most obvious PPE problems in relation to masks (sheer volume & four grades of quality), medical gowns (specialist need and worth maybe 50 masks), hand-sanitiser (huge quantities needed, new suppliers and long shelf life) and rubber gloves (sizes). On top of this are less newsworthy PPE products including safety boots, disposable overalls, hygiene products, wipes, disinfectant, janitorial supplies and lab consumables.
Many buyer’s suffered from low range in their catalogue and early stock-outs whilst another experienced a supplier ‘closing their catalogue’ due to sudden unavailability. A common problem among procurement managers was new PPE suppliers often demanding up-front payments to secure promised equipment. Many instinctively preferred local vendors over international ones, some of whom were accused of late factory-switching, which affected quality standards. Also, vendors were sometimes only guaranteeing prices for 48 hours at the time, demanding fast buyer decisions, all of which led to more volatility. A perfect storm, almost, for stressed buyers.
However, proactive buyers said that having meaningful relationships with their suppliers was key. Some organisations have been able to leverage existing strong supplier relationships. One world-class healthcare company relied on “supplier relationships and text book SRM” to secure and grow their regular supplies throughout the process. “Without those, we might not have received any supplies” the CPO added. Loyalty certainly counted for those who had invested in SRM previously. Ultimately, their friends did not let them down when it truly mattered.
The primary difficulty of SRM, though, is justifying it in the first place. Often, explaining to a grumpy CFO that SRM (being nice to suppliers, is what they often hear) can bring positive rewards.
Measuring quantifiable benefits can be difficult at the outset. But trust, teamwork, getting the supplier’s ‘A’ team, having proactive suppliers, being a customer of choice – all add real value through SRM. And good business relationships sound instinctively right to experienced business professionals in the ‘C’ suite. They just sometimes feel entrapped by a master/slave mindset when thinking of suppliers, often barking “They want the business don’t they?”
Primarily, the C suite (like everyone else) are looking for cost reductions of course, but they can be more easily “sold” on SRM by using case studies and examples more than hard data in advance. And this crisis has provided such case studies in abundance.
Suppliers responding in a crisis
There are stories a plenty of suppliers ‘doing the right thing’ by their valued clients during the pandemic. Proactive offers of discounts, force majeure, clause releases, offering clawbacks and, even, freebies. Many buyers benefitted from easy rent reductions or freezes, office cleaning cost cuts of 67%, insurance premiums dropped by 15% and so on. This sort of co-operation shows what motivated suppliers are capable of.
These benefits are easy to measure retrospectively. Now is the time to capture them and use the results to justify an extended investment in SRM – to protect your business ready for next time. To insure it, if you will. Regular suppliers with strong relationships won’t let you down when it matters.
Using today’s examples to tell the SRM “story” emotionally can help – where data dashboards do not. Rolling out a governance framework for key suppliers is not enough. Neither is delegating contract management and SRM to the procurement team, to the business, or to prime contractors.
Knowing your supply chain
Of course, 2020 will show a different focus on SRM given the Covid-19 pandemic and its implications … and how global supply chain issues are causing problems for local organisations in ANZ.
Many have seen that supply chain VISIBILITY is indivisible from risk. Mapping vital supply chains are now critical, not just for modern slavery compliance, but really for risk reasons. Recent research from State of Flux, an SRM consultancy, suggested only 7% of organisations considered pandemic risks in the business continuity plans (BCP). Risk management builds supply resilience. And strong supplier relationships help many secure vital supplies during the pandemic. This is a sensible investment to protect far flung Aussie businesses from global supply pressures.
Technology can also help map your supply chain, and work closer with your tier one and multi-tier suppliers. Strong contract management work, with and without technology support, provides the basis of good SRM. And strong relationships with your strategic suppliers will serve you well next time.
Seize the Day
Today is the time to start solid BCP planning for next time. To isolate your strategic supply lines and invest in their continuity in future come what may.
Right now, is procurement’s chance to seize the day. To use the abundance of material and case studies now to help justify an investment in SRM to secure your business in future.
Jonathan Dutton FCIPS has a non-exec role at SUPPLY CLUSTERS and is a regular columnist. He is also a brand ambassador for PASA … and some of the material for this contribution was garnered from recent PASA CONNECT Roundtables he chaired over recent weeks. Jonathan also runs regular Strategic Procurement Leadership Programmes where he covers Supplier Relationship Management in more detail.