Managing supply chain partnerships during economic turmoil

Essentially, every company that manufactures goods today depends on other companies to supply the raw or value-added materials that go into their finished products. Most companies recognize that good supplier relationships are more than arm’s length transactions between opposing parties. A better way to think of these relationships is to think of them as partnerships, even though they primarily require management and alignment of goals, but ultimately mutually beneficial relationships. Sourcing’s job is to ensure that performance is as promised, risk is low, and business goals are achieved through collaboration. When suppliers are treated as partners, they can be a tremendous asset in times of difficulty. Especially today, as some industries shift from a buyer’s market to a seller’s market, many suppliers may have their pick of customers, especially if some are easier to do business with, foster collaboration , to listen to new innovative ideas and, above all, to pay on time.

Long before the pandemic, leading organizations across industries had strong supplier relationships and a reliable supply chain is paramount. Having complete visibility into all of your vendors is critical and knowing everything about them is important as it can be the difference between meeting customer demand and not meeting it. Suppliers are a source of growth, innovation and efficiency, but if not managed holistically, they can be a source of risk, poor performance and non-compliance.

Enterprise technologies are available to comprehensively manage your suppliers throughout their lifecycle and incorporate all necessary elements regarding supplier information collection, collaboration, and risk and performance management. Platforms with these capabilities can help risk professionals to: improve visibility across the entire supply chain (including supplier sub-levels); ensure compliance with regulatory requirements (in particular new ESG regulations around carbon emissions, cybersecurity or diversity reporting); assess the viability and risk profiles of suppliers; and assess performance and target areas for improvement. Implementing such a system requires considerable pre-planning and strategic thinking. But following a deliberate series of steps can help you structure a solid program:

  1. Determine what you want to accomplish with your vendor management program.

  2. Ensure buy-in from purchasing, supply chain and IT management.

  3. Structure a plan to gather complete information on all your vendors.

  4. Segment your suppliers into relevant groups, identifying the standards and processes that each group must adhere to and possibly establishing processes for each segment.

  5. Communicate goals, objectives and policies to your suppliers, whether around a code of ethics or more specific objectives by segment.

  6. Create a process to continuously collect supplier information using surveys or a supplier portal, including topics such as information security practices, certificates, financial updates, and generic information updates.

  7. Establish an onboarding process for new vendors and use third-party data sources to assess them against requirements and goals.

  8. Establish a monitoring program to regularly track key aspects of the supplier’s risk and performance profile.

Your criteria may change over time, so regular reassessments of these criteria and related mitigations are still appropriate, but having them well defined from the start will go a long way in helping you set clear expectations. As in any relationship, clarity is key to reducing friction that can arise from misunderstandings.

At the same time, however, issues directly affecting the supplier are only part of a larger risk profile. As we have seen during the pandemic, transporting supplies from an overseas supplier site to your own facility also carries risks. For example, there is a shortage of active docks, requiring ships to be at anchor for days or weeks before they can unload. Additionally, higher levels of theft and shortages of truck drivers, shipping containers, warehouse space, freight pallets, and inspection officers can all compound delivery delays. Being aware of issues within the supply chain, having visibility into your vendors’ vendors, and understanding relationships and dependencies are all critical to being able to respond appropriately.

Vishal Patel, Vice President of Product Marketing at Ivalua, is the author of this article.

Risk Management Magazine and Risk Management Monitor. Copyright 2022 Risk and Insurance Management Society, Inc. All rights reserved.National Law Review, Volume XII, Number 181

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