It should not be news to anyone in a leadership position that supply chains remain in an unstable state. A perfect storm of circumstances ranging from the COVID pandemic, to fires at semiconductor plants, to adhesive shortages wrought by power outages in Texas six months ago still impacts nearly every company that builds or buys something.
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The impacts have been extensive, and in some cases quite dramatic, with the global auto industry forecasting $110 billion in lost sales in 2021 due to the semiconductor shortage. The impact of the various disruptions has been particularly acute since most companies, aided by supporting technologies, have spent decades reducing inventory, migrating to some variant of just-in-time or lean manufacturing, and reducing their supplier portfolio to a handful of key suppliers.
These initiatives were done with the best of intentions, and often freed up resources for other endeavors. Lower inventories of parts and spares freed up cash, while a smaller supplier portfolio allowed for preferential pricing, reduced administrative costs, and perhaps even joint investment efforts. However, a lean supply chain never assumed 2020’s combination of continued shocks that are still rippling across the globe.
Rethinking supplier relationships
Many companies are now rethinking the strategy of minimizing their number of suppliers, and IT leaders have a significant role to play in this transition. One of the compelling reasons for reducing the number of suppliers was to lower administrative costs. There’s a cost to onboarding new suppliers, and even simple items like collecting and paying invoices can become costly when dealing with dozens of companies. Some organizations even adopted a strategy to use their purchasing power to browbeat a handful of suppliers into accepting extended payment terms, or other poor behavior in a Faustian bargain of sorts where large order volumes were the carrot that came with a large collection of sticks. Unsurprisingly, these companies find themselves last in line when their suppliers are allocating a scarce supply of critical parts.
Supplier relationships are no longer merely an administrative exercise, as companies with a robust number of suppliers, who are easy to work with and pay their bills on time, can source scarce parts and ultimately take market share from competitors. If your company is difficult for suppliers to work with, has convoluted and outdated systems and is unsurprisingly struggling to get suppliers to help, it may be time to rethink the systems and processes you have created to manage suppliers.
Supplier management is no longer purely a question of cost
If the early 2020s have taught us anything, it’s that managing suppliers is no longer simply a necessary evil to be performed as cheaply and quickly as possible. The business case for updating your supplier management systems and creating new, simplified processes for adding suppliers should be abundantly clear in the form of lost revenues due to shortages.
If your company is struggling with shortages, take a half-day and attempt to become a supplier of your company. What public information is available to potential partners? How easy is it to set up your hypothetical organization as a partner? Is it easy to enroll, or are you forced to file complex forms and a hundred-step process based on clunky software from the 1990s? Select two or three suppliers, give them a call, and ask how easy it is to do business with your company. How would that supplier rank you compared with its other customers? Are you reasonable, fair and easy to do business with, or would that supplier gladly fire you as a customer as soon as possible?
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If you’re uncomfortable contacting suppliers of raw materials or commodities, contact one of the dozens of suppliers that service your IT organization. Your consulting firms, hardware suppliers and staffing agencies will likely be happy to share their experiences, and it will provide a good proxy for how your company treats suppliers in general.
Armed with this information and the impacts that supply shortages have had on your company, you can present a compelling case for investment in improving your supplier relations and making your company easier for suppliers to work with. This could be as simple as updating guides and documentation, and providing a transparent and responsive contact point for questions or as complex as new technology and dedicated teams to support suppliers.
While IT leaders may feel overburdened with everything from managing new ways of working to supporting new product rollouts, thoughtful discussions of how IT can improve supplier relationships are yet another avenue for elevating IT to the strategic asset to which many of us aspire, and one that likely has the attention of your executive suite.