Working with suppliers in times of uncertainty

Too often, responsibility for managing and monitoring supplier records and relationships is diluted across an organisation.

But this shouldn't be the case, especially in times such as these.

Tough times require tough cost control measures. Your initial response is probably to cut resources – it seems like an instant saving. But there’s a far more logical place to start pruning costs, and that's your supplier database.

Many companies are currently looking to move to new suppliers, but most should be looking to consolidate the relationships already established. Building a strong supplier base may not be the main priority at the moment, but maintaining your base should be.

Who ‘owns’ supplier relationships?
Ask who owns the supplier relationships in your business and a number of contenders will most likely jostle for management position. Operational staff who interact directly with suppliers; the legal department because it is responsible for contracts; governance officers because they oversee the compliance of suppliers' products and services in critical areas of the business; even the sales team, because suppliers might contribute a vital element of a customer service or product.

The truth is that they might all have responsibility at key stages of the supplier management lifecycle, but this means that there is probably no overall strategy to extract the efficiency and cost-saving benefits of proactive supplier management. A lack of visibility can be a constant drain on the business.
 

Manage suppliers and automate supplier management
The absence of centralised records means that the same supplier might be duplicated many times across the business, or suppliers themselves have no actual interface with the business's core systems for invoicing or tracking purposes. The business is constantly reacting after the event rather than managing suppliers proactively. Not only is this driving up the cost of procurement at every stage, it is threatening the survival of businesses.

Driving an automated system-based supplier management strategy across an organisation that will rationalise records and provide a platform for leveraging the cost and efficiency benefits of improved supplier relationship management could be the difference between success and failure – or even survival.

Using an automated system to categorise suppliers and classify goods and services means that everybody in the procurement chain can find what they need, based on the right engagements with their required categories. Automation also removes the need for manual supplier record maintenance - another daily cost that can be removed. The Accounts Payable department is liberated from the paper chase to focus on invoicing and revenue gathering.
 

In fact, effectively managing and engaging with your suppliers provides a host of benefits:

For the CEO:
  • Improved profitability through reduced costs.
  • Improved competitive position through a stronger supply chain.
  • Reduced risk.
For Finance:
  • Reduced cost of purchased goods and services.
  • Reduced operational cost in AP, Procurement and across the enterprise.
  • Improved cash management.
For Procurement:
  • Stronger supplier relationships.
  • Better value; lower risk.
  • More time for strategic sourcing and supplier development activities.
  • Contract compliance.

Collaborate with suppliers on new cost reduction innovations
Work with your suppliers on how to reduce costs and understand cost structures. Look at options with suppliers, such as different ways of payment and different ways of managing inventory. Don't just keep doing the same thing, just because that's the way you've always done it. These times call for innovative approaches. You may even find yourself in a position to take advantage of any early payment discount terms your suppliers offer, or accelerate payments to your suppliers.

With a reputation for paying on time, or even having a mechanism to pay invoices early, and making it easy for suppliers to manage their accounts receivables with you, suppliers may be more willing to give your organisational preferential prices and terms.

As we emerge from the current situation, we will eventually get back to normal, quite possibly with shortages. This means that suppliers will select who gets limited supply. With that in mind, take time to build good relationships when things are slow. Make your company easy to do business with and become a "preferred customer."