Post-COVID, we now know that your relationships with your suppliers will change. Managing them through the rearview mirror on past performance won’t be enough. You will need to engage with them and seek to influence their future behavior. Supply Management will become 4D Supply Engagement.
You have learned much in the last two months
First, you have found out that risk management processes for identifying and managing future risk went out of the window and did not work. The risks were not recognized correctly, and more chances will continue to be missed in many organizations during the time of restart. It turns out it is hard to look deep enough into your supply base from the outside – given its complexity – to understand enough pieces to the extent you need when there are many parts across many layers. As the lockdown ends and manufacturers and service businesses restart, how many will find starting harder because elements/components necessary to operate are not immediately available?
It is still essential to have systems and structures around understanding past supplier performance. Classic supplier management, which tracks operational performance, and checks to commercial terms, has a role to play. This is the ‘rearview mirror,’ which it will be possible to automate collation, reconciliation, and assessment of, to give an overview of the situation to the board.
However, secondly, you have discovered that while reporting systems can tell you about past supplier activity, they struggle with what is going on in that supplier today or tomorrow. Discovering their finances from six months ago is not the same as understanding their financial position now or in the near future.
COVID shows you need to understand the now and the future much, much better
One answer is to harvest and interpret up to date information available in the social media and elsewhere about what is happening in your supplier’s industry and perhaps to your supplier. Tools that interrogate the internet to harvest this information are emerging (declaration of interest – Proxima have developed just such a tool in its CatalyticsHub).
A review of social media et al. is then complimented by seeking to understand what is going to happen with your supplier in the future. And influence it. It is clear from discussion with many FTSE 100 and Fortune 500 CPOs in the last fortnight that future relationships with suppliers will involve much more frequent dialogue. CPOs such as Dietmar Harteveld at Siemens have already upped the frequency of conversation to nearly daily for some of their key suppliers. At the moment, this is rare, as sales and relationship teams on the receiving end will testify. It will become much less so.
The opportunity, as Dietmar and others are discovering, is to evolve and enrich the nature of the dialogue with the vendor base and to turn it into more than supply management. You can turn it into ‘engagement’ across multiple dimensions. I call it ‘engagement’ to reflect that it is about more than supplier obligations; it is about discretionary behavior on the supplier’s part to provide more and choose to align themselves to their customers’ needs. It will pick up on three trends, two from before the crisis, and one caused by the crisis.
Dimension 1 is innovation
Suppliers choose who they take their newest ideas to. If you want that idea to come to you, you need to be an attractive place to take it. This is about the speed of implementation, being easy to deal with, willingness to embrace the new, and contribute to improvement. It needs trust.
Dimension 2 is sustainability
This has not gone away. Reducing wasteful consumption is going to be topical for some time to come. Working with your supplier to reduce carbon footprint requires both sides to share thoughts, data, and plans to create a mutual journey. It needs trust.
Dimension 3 is resilience
The issue is no longer where your risk is. I believe that in many areas, you cannot see into the future sufficiently clearly or deeply to know where your risk is going to be. However, you can get the supplier to share what they see their most significant risks with you. Both for yourself and your supplier, the question is then how quickly can you or they change, adapt, and at what cost, when a crisis emerges. This is what resilience is going to mean going forward. Again, it needs trust.
Dimension 4 is time (of course)
We are looking into the future with suppliers and need to have a track record of working together. You need to create the completeness of the relationship around which the future can be planned and shared together.
In this time and an expansive, optimistic mindset and approach is required, to set up relationships of trust. Digital tools such as Mark Perera’s Vizibl and others are systematizing the collaboration journey to support such changes. It does not come into conflict with the appetite of procurement to reduce costs; instead, it enriches the discussion with the business and with suppliers about the nature of value and competitive advantage. One dimension can become four.