We are, all together now, in the throes of crisis. We hear this seemingly every day, but these are not normal times. The new normal seems far off (12 – 18 months, maybe?), and we cannot be sure what it will look like. It is okay (and necessary) to acknowledge that upfront when looking to grow your supplier partnerships.
COVID-19, and all the machinations that have resulted from its impacts, economic and otherwise, have changed the way we live and work. It’s also changed the way we think about so many things in our daily lives. Things we once took for granted have now come into sharp focus as matters of the utmost importance. Areas that we spent little time thinking about in the past, now require us to think through extensively how we will address them in the immediate and longer-term future.
The impacts feel more urgent than they ever have – sometimes, our lives, jobs, homes, or businesses are on the line. It’s a lot to process all at once, but we can do it together in small steps, tackling tough problems over time.
Let’s start with one area we need to be thinking about at work: Our businesses have long taken for granted our supplier partnerships. The depth of our supplier relationships is critical to the health of our businesses, but do we really know our suppliers that well? A crisis like the one precipitated by COVID-19 has forced us to immediately, and critically, examine our partnerships with our suppliers, generally:
Are we getting what we need?
- Are we getting what we need?
- Is it being delivered efficiently and at low risk?
- Are we achieving value against the total cost of ownership?
And, more specifically to this crisis:
- Can I shut down service if needed for the time being?
- What do my rebate, incentive, payment, or continuous improvement clauses look like?
- What innovative things can I do now to address my liquidity or profitability concerns with my partners?
- Do I need to worry about service interruption due to the financial (or other) health of my partners?
- What short, mid, and long-term risks haven’t I considered that I need to address now with my partners?
- Am I working with the right suppliers to get me out of this when the time is right?
Sure, these are things that many Sourcing and Category Managers think about regularly anyway, but when time and resources are stretched thin or focused elsewhere during a crisis, it is precisely these areas that need prioritization and dedicated attention. Businesses that have invested in end-to-end Supplier Relationship Management (SRM) functions and roles have a leg up today in that respect. Businesses that take the time and resources to think about and invest in E2E SRM now will be better prepared for the future overall, as well as for the next crisis we will inevitably face together.
SRM – Tainted term? Business necessity? Or both?
When we think of SRM, we think of many names and many things. We interchange supplier, vendor, and partner in various instances. We talk about and focus on supplier relationship, lifecycle, risk, enablement, onboarding/off-boarding, governance, analytics & performance management, commercial management, innovation, development, diversity & inclusion, and many other areas. We get into endless debate about the distinct differences between SRM and SC&I (supplier collaboration and innovation).
SRM is a broad term disliked and embraced in equal measure. But for the purposes of this article it is that which bundles together many functional & process capabilities that we need to consider when thinking about knowing our supplier well, and what matters in keeping our partnerships healthy, so that our business stays strong.
In times like these, what do we prioritize? Where should we put resources so that we are most prepared to weather the crisis now, as well look to the future? In the past, these have been questions of managing risk or seizing opportunity – who can get ahead of the curve? Today, this is a question of necessity – who knows their supply base well enough to adapt/adjust immediately?
When it was about just opportunity, the cost of SRM sometimes seemed prohibitive. The “tangible” business case was hard to articulate, worse to prove. Today, although the cost of investing in SRM may be even more of a concern, business calculations and priorities have shifted; how well we know our partners, and how deeply those relationships run, comes at a premium. SRM is something worth building on and investing in.
SRM – no longer a bolt-on or nice-to-have. Why?
If strategic sourcing creates value and transactional procurement locks in that value, then we know that a critical part of strategic category management is not only value creation, but an end to end understanding of the total cost of ownership. The only way to understand total cost is to digest quantitative and qualitative metrics about goods and services procured, but also about the suppliers providing them. This is what makes SRM critical. Dedicated SRM allows for the provision of an understanding of risk, flexibility, capability, innovation, and of so much more that our supplier-partners may have to offer. Quite simply, we know them better, and that helps us to anticipate.
If we had known, via risk assessments, quarterly business updates, metrics, external news sources, or even just via regular informal conversations with our suppliers, that some of them were too far leveraged to manage a crisis, or could have had potential liquidity or supply chain issues, then maybe we could have prevented some of the disruptions occurring today. If we know back-to-front what our contract language is with our partners around incentives or rebates that affect liquidity, then we can exercise or negotiate against those clauses more immediately to modify our bottom lines when needed. Through end-to-end SRM, maybe we could have prevented some of the hardest impacts of this crisis on our supply chains? Perhaps not, but perhaps we can still prevent some of the potentially lost benefits of tomorrow’s crises?
Building on successful SRM may also give us another added benefit; the ability to take our organization into more advanced partnerships focusing on innovation and collaboration. These will no doubt be critical to the speed, agility and health of the businesses that we are about to become. Purists would argue that this is distinctly different to SRM. But the fundamental principles are the same; understanding what makes a partnership work, and committing to it.
Through tight and trusting relationships, maybe we might just get out of this smarter and faster too?
What does this all mean for our day-to-day? The way to address these gaps systemically is by having end to end SRM capabilities in place in our organizations. The only way to do so, to make the right capacity and capability is available when needed, is to invest. Investment comes in different forms:
- Reallocate roles / responsibilities of current resources to focus more on SRM (dedicated capacity is typically lost in other critical areas, stretched thin)
- Build / staff up / hire new internal resources dedicated to end-to-end SRM functions / capabilities (immediate hiring freezes and long term cost considerations may apply)
- Utilize on-demand expert SRM SMEs to flex capacity during crises (quick deployment / implementation, immediate ROI, builds process/capability base to re-train/re-allocate or hire internally post-crisis)
- Provide current resources with flexible / powerful tools to understand suppliers / supply base / and supply chain trends etc. (incremental but an important build to achieve any process capability builds)
- The ‘right answer’ will be different depending on who you are as a business, your culture, operating model, regulatory status as well as the types of supplier partnerships that you have, and want to cultivate. But there is always a right answer.
So what’s the point? If we want to succeed today in driving immediate value creation, we need to know our supplier partnerships like the back of our hand. If we want to succeed tomorrow in locking in or growing value, we need to innovate with our suppliers, and that only happens when we are close to them and able to unlock the power of ‘one to one partnerships’ and, or ‘supplier networks’. The only way to achieve any of this is through committing to it. There is a short term need, and there will be a long term ROI.