Strengthening supply chains

COVID-19 has forced the world into a new reality by disrupting global supply chains. In the first couple of months, focus was on stabilizing the supply chains. Now, the dialogue has evolved into how companies can strengthen their supply chain fundamentals to better prepare for the future.

While the idea of putting deeper supplier collaboration programs in place is not new, it has gained significant traction as companies are looking at ways to strengthen their supply chain fundamentals. An advanced supplier collaboration model involves companies treating their suppliers as an extension of their own enterprise. A company that approaches this ideal can enjoy multiple benefits including:

  • Becoming more efficient:
    Collaboration unleashes synergy effects in the delivery process, e.g. by eliminating overlapping expenditures
  • Generating more value from the relationship:
    Collaborating companies are raising quality, increasing innovation, and accelerating the speed to market
  • Reducing overall supply chain risk:
    Working closely together means to increase transparency on secondary and tertiary levels of supply chain
  • Enhancing agility:
    Having a carefully designed supplier ecosystem as an integral part of the operating model offers the chance to react quickly to changes in customer demands

Companies with mature procurement functions have spent significant resources in last few years on the subject. However, at most companies, buyer-supplier collaboration programs are at a relatively early stage. Critical factors in implementing successful supplier collaboration programs include:

Identifying the right suppliers for deeper collaboration

Deeper collaboration cannot be done with every supplier because of the amount of work involved. Identifying a select number of suppliers with whom to run this program is one of the crucial steps of design. It is important to define an objective framework to facilitate supplier selection. Typical dimensions covered in such frameworks include:

  • Category strategy:
    What is the direction of travel the business wants to take concerning the products or services supplied by the vendor
  • Operational capability
    incl. design, delivery, quality
  • Service levels:
    Level of consistency delivered by the suppliers over the history of relationship
  • Innovation and technology capability
    (e.g. for retail it may mean new sewing and cutting techniques)
  • Spend:
    Although spend is a tail indicator, typically highest spend suppliers tend to make it to strategic suppliers list

Aside from above, all suppliers should have a base layer of capability. The definition of base layer would vary per company, but the typical examples could be code of conduct, level of capitalization, tech infrastructure, security protocols etc.

Defining governance structure

Another important point to consider while designing supplier collaboration programs is governance. Defining governance structure includes clearly articulating the key meetings that will take place with the suppliers, the agenda of these meetings, and the participants.

Governance set-up is further strengthened by putting in effective performance management measures. This includes clearly defining KPIs (often seen in form of supplier score cards), having a regular performance management session to give structured feedback to the supplier partners. Formal 360 degree feedback mechanisms are a good way for companies to give feedback to the supplier partners and vice versa.

Involving suppliers in creation and delivery of implementation plan

 Ultimately, trust is at the core of a collaborative relationship. Suppliers will need to see clear benefits that they can derive as a result of their efforts. They will see through very quickly whether words are translated into action or not. To this end, it is important that as part of the program design, companies take time to understand what the key desires from their supply base are, or what they can do to deliver value for their suppliers.

Getting leadership team Buy-in and commitment

Supplier collaboration programs have a long gestation period. Significant time and management effort need to be put in before the program will generate value. Although these programs are typically initiated by the supply chain departments, it is important to secure C-suite or senior leadership commitment early-on as these programs typically need substantial cross-functional involvement from both sides.

Advanced supplier collaboration has become a growing requirement for organizations looking to strengthen their supply chains in the wake of 2020 events.

INVERTO has deep expertise in setting up advanced supplier collaboration initiatives. Contact us to discuss how we can help. Thibault Lecat is at your disposal regarding further questions on supplier collaboration programs.

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