During recent times, supply chains and supplier relationships have been tested like never before, putting the Chief Procurement Officer centre-stage and in the spotlight to find solutions as businesses try to protect operations, revenue and profitability. Throughout the Covid-19 crisis we’ve seen many procurement teams adopt a so-called “dash for cash” response (i.e. a classic cost-out initiative) - whilst not a surprising response to a crisis it’s a very short term in focus and easy to do. There are many levers available for such an approach (control demand, change the specification, limit usage, aggregate spend and so on). Yes, cost-out has the potential to yield results quickly and it will help the bottom line but it can do a lot of damage at the same time - the kind of damage that is difficult to undo.
We’re not saying that cost-out is intrinsically a bad thing, but how it is done is crucially important. It’s often used without fully appreciating the wider consequences - it hurts supplier margin and it kills the goodwill in supplier relationships. And as we slowly work towards post-Covid recovery, an organisation that just a few months ago acted with scant regard for its suppliers will probably not be a ‘customer of choice’ to those same suppliers going forward.
A better way to do it?
It’s worth noting that in the current climate, the external force that is driving procurement and supply chain behaviour is affecting everyone - buyers and sellers alike. This pandemic is, to misquote John F. Kennedy, the falling tide that is lowering all boats. The declining economic conditions caused by Covid-19 continues to affect the economy on a global scale.
So if we’re ‘all in it together’ why wouldn’t we deal with it together? If we need to do cost-out in our supply chain, why not do it with the suppliers active collaboration, rather than just doing it to them? Active collaboration with suppliers can help you find savings that you could not have accessed on your own, but it does not have to stop with cost. Supplier collaboration can also help you achieve lower risks, improve efficiency, eliminate waste and unlock greater value than you could do on your own. Time and time again, in all of the value release plans we’ve helped our customers develop, it was the active, willing engagement of suppliers that made the value that was released achievable.
And, from the supplier’s perspective, you’ll become a better customer to work with.
2020 Online Summits | Supplier management at speed
EMEA: 3 November, 2:00 pm GMT | 3:00 pm CEST
SRM at Speed starts with a simple question
Think about your supply chain challenges for a moment. Have you asked your suppliers “How can we deal with this together?” There’s a real danger that you’re heading for some medium term problems if you haven’t. But, there’s a real chance you will find a novel, creative and practical solution that works for you and your supplier if you do. And that’s why, in the current economic climate, SRM at Speed is so important.
To explore the themes highlighted in this article don’t forget to join us at the State of Flux online SRM Summit on 3rd November 2020 where I’ll be interviewing Roger Davies, former Procurement Director at John Lewis Partnership for what promises to be a lively and informative discussion about the dash-for-cash and the dynamics of supplier relationships.
You can register for our Supplier Management at Speed event at here