Supplier Collaboration is key to Preserve Cash and Protect Relationships
Supply chain is critical during and after a crisis
The supply chain is a key source for companies to survive thru preserving cash and cutting out of pocket cost. However, measures must be taken in such a way that the company maintains security of scarce and critical supply and hence protects relationships with key suppliers. This balance-act can only be done in collaboration with these key suppliers. Unilateral price and spend cuts may have a short-term benefit but will lead to supply and relationship damage in the longer term.
Speed is of the essence but unilateral measures are likely to back-fire
Too often unilateral supply chain measures are viewed as the quick solution for companies to survive a crisis. This may however well back-fire, both in the short and the long run. In the short run suppliers may stick to their contracts and defend thru a tough position and even litigation, which at best will take more rather than less time but also puts the savings at risk. Even if the unilateral measures can be imposed in the short run, the consequential damage to the critical supply chain could be devastating. Deteriorated trust will lead to loss of access to critical resources, services and goods, lower innovation and higher cost of business due to rigid structures and mindset.
Collaborative approach can unlock significant benefits
Only by a joint client and supplier approach several levers can be explored to realize short term benefits and safeguard long term business. Once-off contracts can be transformed into service or subscription contracts, yielding a significant short-term cash impact. Also, re-allocating or re-assessing risks and related risk premiums may be beneficial to both parties. Another option is to explore how client and supplier resources can better work together and optimize total cost and capacity utilization. More classical options are to extend contracts which allows suppliers to lower their sales & set-up cost included in the contract. All of these options will require collaborative discussions between client and supplier business and commercial representatives.
Collaboration with key suppliers can be done at speed with the right focus
Attaining speed in creating a collaborative approach to the supply chain is a matter of focus. Select the key suppliers, involve the right people, be prepared but come with an open mind. Selection must be done on a size and criticality basis, the people involved need to have the knowledge to develop business solutions and the mandate to decide. The preparation must focus on possible options and particularly on boundary conditions.