Supplying the goods

Emma Scott of the Chartered Institute of Purchasing and Supply explains why there has never been a better time for organisations to reassess their procurement and supply chain strategies.

A supply chain can bind an organisation's activities together through its relationships with suppliers and stakeholders.

The current economic climate is the ideal time for getting this message across and for promoting the importance of the procurement function. Supply management has never been more visibly essential than just now, as business leaders are being asked to protect margins, identify key suppliers and key customers at risk, manage the relationships on which survival depends and find creative solutions to avoid cash shortages in the value chain. These activities will differentiate those organisations that sharpen their practices and survive the lean years, and those who disappear out of inertia. Smart organisations are already planning ahead for the up-turn to become the customer of choice when growth resumes and shortages reappear. Those that are even smarter, are making sure their key suppliers are at their side on this journey, back on the road to success.

With record numbers of companies filing for bankruptcy, many supply-chains are resembling a house of cards. In the first three months of 2008 alone there were 19,062 bankruptcies and 10,713 individual voluntary arrangements (IVAs) in the UK. What would the impact be on your organisation if some of your closest suppliers suddenly disappeared? 

Where your focus should be

* A time for synchronicity

Understanding each other's needs on how to survive now and grow in the future is critical for joint success. Ever-closer synchronisation between customers and suppliers is the key. The means tightening and understanding the links between suppliers, your organisation's operations and your customers.

* Build information bridges

Information is power. Establishing a valuable flow of information amongst your stakeholders, suppliers and customers will build a common bond of trust.

* Seek sustainable relationships

Build enduring relationships with your closest suppliers, because you are all in this together. Re-examining existing relationships and deciding whether they are the most effective and efficient for you under these new testing conditions is a difficult process. You will not be able to establish a partnership with every supplier, but it is important to determine which ones will be sustainable. Focus on those suppliers that you can't afford to lose and find a way to ensure that they survive alongside you.

* Make strategic changes

Carve out some time out from the daily grind to focus closely on the supply-chain and think about the future. Can you deal effectively with the recession's volatilities? Remember You don't have to go it alone. All these considerations are an exercise for the whole organisation and its partners, so encourage that internal collaboration too.

* Advance everyone's understanding of the value chain

The more people think about their roles and the part they can play in dealing with the economic downturn and its effects on the organisation, the better they will do their jobs. Re-think the way you appraise employees and evaluate their contribution to the 'value chain'. Promote greater co-ordination at all levels between purchasing people and other parts of the organisation; this should help to stimulate innovation through this greater understanding of the issues facing all of those involved.

* Marriage guidance for buyers and suppliers

The CIPS, in collaboration with the University of West England and Oracle carried out some research recently that encouraged closer collaboration between organisations and their suppliers for keener strategic advantage in the marketplace. I-RELATE, offers a best practice guide to developing buyer-supplier relationships, improving the exchange and flow of good information and giving a competitive edge to business decisions. The research is accompanied by an on-line self-analysis toolkit of buyer-supplier relationships that buyers can use to identify their current practice and build on future business relationships.

The issue of collaboration and the impact on interaction and relationships between organisations and their suppliers have been extensively discussed and researched. Proximity with suppliers will encourage more frequent interactions that will inevitably lead to closer relationships which, in turn, can affect the exchange and flow of information and knowledge. The growing complexity of technologies and the opportunity to be a player in global competition will need  more collaborative activities with suppliers, involving them at a much earlier and a more extensive level in product development. Many firms are now rethinking the scope of their organisational boundaries, using collaborative relationships as a cornerstone of strategic competitive advantage. When going through this process the following factors should be considered:

Necessity over complexity

Managing buyer-supplier relationships is undoubtedly a complex task. The key issues include the management of dependencies and the management of risk or certainties and the frequency of exchange. A buyer may have different types of relationship with a supplier depending on the importance of the product, the amount of risk that is being taken and the balance of power versus dependency within the relationship.

The management of relationships is not only about setting up an agreement. A new way of managing the relationship may need to be introduced as relationships and strategies are dynamic and need to be managed over time. At different stages, they may require different people and/or skills to manage them. Not surprisingly, the I-Relate research found that elements such as joint relationship meetings, dispute resolution, ongoing supplier stability, flexibility and account management were more important the more complex the relationship was. On the other hand elements such as price, quality and delivery remained as important whether it was a one-off spot purchase or a partnership arrangement. 

The beginning of a beautiful relationship

Assessing which suppliers need investment for a more intensive relationship requires much consideration. There is no magic formula, only careful consideration about how this supplier adds value, impacts on your production and affects your customers. Resource is scarce at the best of times so getting the right number of suppliers is paramount. Too few and you could miss something major, too many and you can't commit the right amount of time and effort. Considering the effort involved, choose to focus on survival, innovation and delivering customer value. Building sustainable, agile and aligned relationships takes skill, knowledge and experience. This is a job that is far too important to fail, so ensure you have your very best people on the case to guide your organisation through these turbulent times and be better placed for the up-turn when it inevitably comes.

Emma Scott is Representation Manager at the Chartered Institute of Purchasing and Supply. The CIPS promotes and develops high standards of skill, ability and integrity amongst those involved in the purchasing and supply chain management industry. For more information log onto: www.cips.org.