The global economy remains in a state of flux. Are we heading for a global recession? Who really knows, however uncertainty is our biggest enemy in predicting and steadying the supply chain. The result is a reluctance to make a commitment as all organizations want to nullify risk.
For Buyers, there is a drive towards fixing costs. For Suppliers, they fear losing money because they cannot pass on inflationary increases. These conflictory positions place additional pressure on already strained relationships. The dilemma is that maintaining a fixed price could force supply organizations into bankruptcy, evidenced in the construction and retail industry. For customers insisting on fixed price, suppliers either add overly cautious premiums making the arrangement untenable, or walk away and no-bid. This serves nobody.
To avoid the zero-sum game, organizations need to determine how arrangements can be structured to create a shared risk/ shared reward. Central to this approach is creating transparency to move the relationship from away from transaction to collaboration. Transparency equals trust, and whilst full ‘open book’ may be a bridge too far, there are different overlays that can be applied to help formularize the demand, cost and value drivers.
Defining and structuring appropriate parameters, as well as changing the bid by bid transaction mindset, will encourage relationships to be developed that buffer and stabilize the supply chain. We call that a win/win.
Carbon neutrality is no longer a matter of if but when. The 2021 court case against Shell in Netherlands demonstrated it is no longer about ticking the boxes but taking real action. What does this mean for your supply side? Scope 3 emissions cover all indirect emissions that are incurred in the supply chain both upstream and downstream and, for many businesses, suppliers can account for between 50% to 80% of total emissions.
Having accurate information on your supply base is imperative; this creates the first key challenge, “data” capture. With potentially 1,000’s of suppliers, businesses who have not structured or enriched supplier master data with the appropriate dataset will struggle to get to grips with net zero. There are a number of third party solutions to help businesses, however unless these tools are embedded into a robust supplier on-boarding process and regular supplier review, the process itself becomes unwieldy and less meaningful.
Accompanying this data challenge, a change of perspective and approach must be applied to ensure the net zero objective can be operationalized in a meaningful way. Importantly this action must be measurable and capable of being validated by customers. Is your sustainability goal more than lip service? What changes have you made?
Global recession, supply chain disruption, inflation and erratic demand will continue to place pressure on businesses to improve their cash flow management. A recent UK Dun and Bradstreet annual SME report indicates that late payments have almost doubled since 2019 and invariably these delays are forced down the supply chain without agreement or consideration of any direct and /or indirect consequences.
We know organizations differentiate their customer base and prefer dealing with customers that are stable, consistent and pay on time. Organizations will penalize those customers that fail to meet these ideals – these penalties may not be transparent or explicitly communicated however they exist and will impact the customer negatively.
Examples include:
- Addition of a risk price premium – charges are significantly adjusted to cover the risk of debt, interest and inconvenience when dealing with that customer. This addition increases cost of sales.
- Service disruption – services may not be performed until payment has been made. Cash on delivery or advance payments may be demanded from the customer which actually worsens the organization’s cash flow position.
- Finance charges – Letter of credit or other forms of finance guarantee, and interest payment demands add delays to the process and increase the cost of transaction for the customer.
- Supply assurance – preferred customers will be top of the fulfillment list where capacity and material shortages occur. Knock on delays across the supply base multiples create a domino effect that destroys responsiveness.
Do not negatively impact your reputation by failing to pay on time. Take a considered approach; there are appropriate supply-side strategies that improve cash management, mitigate penalties and improve robustness.
According to SAP, spend leaders take three key actions to drive better business outcomes:
- Treat Suppliers like Partners
- Think like a Shareholder
- Embrace Automation
How does your organization value suppliers? What investment is made to grow this value?
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