Successful supplier management occurs when both sides work together for mutual benefit. As the best performing procurement functions know, it is not about something that’s done to suppliers, but...
Over the 12 years that State of Flux has been conducting research into supplier management best practices, the theme of ‘people and skills’ has continued to demonstrate that the behavioural side of SRM far outweighs technical skills when it comes to delivering real commercial value. Add to this that our most recent 2020 research shows that just 17% of organisations have conducted an SRM capability assessment, and we have real cause for concern. The result is that the majority of organisations have no evidence based view that their people are actually equipped with the behaviours that build collaborative supplier relationships.
State of Flux is delighted to announce two new hires in the US and EMEA businesses. Steven Nieri and Louise Whyte both bring with them extensive experience of procurement transformation and procurement cost reduction which add to our core strengths in supplier management.
With the introduction of the Modern Slavery Act 2015 in the UK and the Modern Slavery Act 2018 in Australia, companies who have turnover over a certain threshold - £35mil and $100mil AUD respectively – are now required to produce an annual statement on how they identify and mitigate modern slavery risk in their global supply chains.
Much abuse that occurs in relation to workers happens in global supply chains, upstream in the chain where labour intensive and low value activities occur. Therefore, large companies located at the end of that global chain have a responsibility to work with their suppliers and suppliers’ suppliers to ensure that working conditions through the entire chain are ethical and legal.
In order to do this, efforts of global companies has largely been concerned with development of policies and tools related to supplier codes of conduct and auditing according to those codes. (Christ). Though a good place to start, the fact that labour abuses in supply chains continue to be uncovered is evidence that such an approach has so far been unsuccessful.
2020 Global SRM report: Supplier Management at Speed
Currently progress in addressing modern slavery is still limited by what private companies are willing to do in order to address labour abuse in their supply chains. In order to make actual progress, corporations need to cease viewing labour as a cost or merely as an input factor for production and make it a truly integral part of their supply chains.
Traditionally procurement organisations have focussed on their direct suppliers in terms of managing risk, continuity of supply and quality, however the modern slavery legislation requires organisations to think in terms of their entire supply chain, not just their key tier one suppliers. This is a shift in thinking that contemporary procurement practices and systems are not geared for. As such, procurement, compliance and sustainability teams are all grappling with the issue of how to gain visibility of their supply chain beyond their direct suppliers and how to ensure sustainable practices further down the chain and the COVID-19 crisis are not making things easier.
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.
There can be little doubt that the Covid-19 pandemic has been the most significant, and perhaps the most traumatic experience many of us will have had in our lives. It has and will continue to have a huge impact on us as individuals, as a society and as a workforce.