Managing Your Suppliers Successfully
It was recently reported by the Forum of Private Business that smaller suppliers and subcontractors in the UK are regularly being left waiting for paym...
It was recently reported by the Forum of Private Business that smaller suppliers and subcontractors in the UK are regularly being left waiting for payments from government departments. Despite a public sector initiative that is meant to encourage payment of invoices within 10 days, it turns out that this is bypassing many small suppliers. News of this growing trend is worrying but not all that surprising. Relationships between buyers and suppliers are vital in order to maintain a working supply chain. However, during the economic volatility, these relationships came under increasing pressure. Naturally, as soon as the buyer decides to delay payment to its suppliers, their cash flow is affected, which can have repercussions further down the line.
Lines of communication
There are ways to ensure that the buyer/supplier relationship avoids some of these pitfalls though. Stefan Foryszewski, founder of global e-invoicing network OB10, told Supply Chain Digital that such a “business-critical” relationship needs to be carefully managed.
He observes that price negotiation is one of the most commercial benefits of successful supplier management. “The initial result of a good relationship is an open discussion which can examine pricing. It also unlocks the communication channels in order to discuss terms of trade which can ultimately improve operating terms for both businesses.”
He agrees that the recession put buyers and suppliers under an unusual amount of strain. “With credit conditions still tight, cash remains king. Because of this pressure, we remain in a conflicting set of circumstances where customers are trying to lengthen terms while suppliers are trying to receive funds more quickly.”
Thanks to the Forum of Private Business’ relentless campaigning, it has implemented the Prompt Payment Code, which comprises a list of companies pledging to pay smaller suppliers on time and in full. Earlier this year, Bacs Payment Schemes Limited (Bacs), the organization behind Direct Debit and Bacs Direct Credit, reported that in December 2009, British SMEs were having to wait an average of 41 days longer than their original agreed payments terms before invoices were being paid. This was an increase of 9.5 days on the time SMEs were waiting, beyond agreed deadlines, in June 2009.
Recent pressures point to the fact that it is wise for buyers and suppliers to keep the lines of communication open at all times. Stefan expresses a similar point: “Good communication is also a key attribute – how and when suppliers want to be paid is a simple question but it’s one that too many businesses overlook.”
In August, Ford Motor Company revealed it was simplifying how it works with suppliers by “reducing complexity and expanding part commonality”. It already has a network of key component and service suppliers, called Ford’s Aligned Business Framework (ABF), which helps with long-term collaboration. Birgit Behrendt, Executive Director of global programs and Americas purchasing, said: “The ONE Ford transformation is improving competitiveness not just for Ford, but for our suppliers around the world.”
As part of the ONE Ford plan, the company will build 72 percent of its vehicles off 15 core platforms by 2012. The idea is to work closely with suppliers to take advantage of efficiencies throughout the vehicle development process.
“These types of improvements would not be possible without a globally integrated Ford working closely with a supply base that is also coordinated around the world,”
Ford has recognized the benefits for both parties if it works closely with its suppliers to make cost savings and increase efficiencies. The company has also worked at standardizing its supplier relationships, which establishes a level of consistency.
“Buyers need to work with suppliers to manage their expectations and agree to realistic terms that work for both sides,” explains Foryszewski.
Setting out the terms of the agreement from the start is vital. Then, if the relationship does come under any strain or any problems arise, the terms are in place and supplier and buyer can proceed in the agreed manner.
He adds: “If buyers are able to foster a successful relationship, they should be able to try and increase the willingness to deliver goods and services more promptly which will be achieved through a good supplier manager, but also by on time payment.”
So the buyer/supplier collaboration works both ways and has to be advantageous to both organizations. If one party feels as though they are not getting anything from the relationship, it could put it in jeopardy.
Now is the time for companies to be evaluating the value of their supply base, and for suppliers to ensure that its buyers are meeting the agreed terms.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”