Raw material challenges and other supply disruptions have made supplier relationships more important than ever during the pandemic.
But with some procurement teams managing hundreds of suppliers at the same time, it can be difficult to deepen relationships with vendors — and keep them accountable when they fail to meet commitments.
Here are five strategies which can help to better manage suppliers.
1. See your suppliers as partners
I organized several brainstorming sessions with my suppliers last year to generate cost savings ideas, and it has led to some incredible results.
Suppliers can help customers add efficiencies and cut costs. Contractor PCL helped its client slash construction costs by suggesting alternative designs.
But businesses can help their suppliers by investing in their operations, a move that can also boost capacity and secure long-term supply. Stanley Black & Decker, for example, is co-investing in battery supplier projects that aim to boost capacity.
By working together, companies and their suppliers can find ways to grow supply while keeping costs low. It’s a win-win on both sides.
2. Secure long term agreements
I’ve had agreements with some suppliers last as long as five years. Longer-term agreements fostered deeper relationship with suppliers, and ensured uninterrupted supplies even in challenging external environments.
It also opened up more opportunities for product innovation and sustainability, which are beyond the usual course of business yet key strategic initiatives for growth.
3. Create a performance scorecard
It’s important to have an objective assessment of suppliers in regard to their financial health and operational parameters, such as schedule adherence and product quality.
Create clear expectations for suppliers and regularly track their performance. Immediate feedback should be shared if it’s below an acceptance level as it helps suppliers know where to focus their efforts.
4. Carefully construct contract clauses
The right contract clauses come in handy in cases of legal disputes or risk events. Try to have a “first priority supplies” clause in your agreement to ensure continuity in the face of disruption.
Additionally, add penalty clauses in regard to performance expectation, intellectual property, confidentiality violation and indemnification — they can push suppliers to be extra vigilant and careful.
5. Regularly assess your supplier base
Supplies will continue to be the weakest link in the chain as geopolitical turmoil, pandemic uncertainties, adverse weather and other black swan events continue. Procurement teams should regularly assess their supplier base based on business priorities to better manage key spend items.
Also assess supplier lead times and enhance your planning and forecasting efforts until they return to a more normal range. With so much disruption, it may be a good idea to build up safety inventory. On-hand stock gives businesses time to react and work with suppliers when a crisis happens.
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