Supply chain disruption is fast becoming the de facto operating model, the ‘new normal’ if you will.

Although risk management was always a part of the conversation, prior to 2020, many took a laisse affair approach, with a sudden escalation of concern and prioritisation in the wake of a crisis. Once the waters calmed, and competitive pressures resurfaced, risk management was quickly traded for cost reductions and competitive advantage. Safety stocks were left to dwindle, and diversification of the supply base became a ‘nice to have.’

With supply chain disruptions expected to continue for as long as we can realistically divine these things, and availability of supply now a bona fide threat holding the severest of repercussions, risk and resilience must remain in focus.

To withstand competitive and shareholder pressure and achieve lasting resilience, solutions will require a more pragmatic approach, managing the trade-offs between deliverables—risk & resilience, digitization, sustainability, innovation, and cost control.

But first, we must untangle the intricate web we’ve weaved.

A New Era of Radical Transparency

As the semiconductor crisis served to remind us, the world’s resources are finite, and not all capacity is elastic. When supply shortages skyrocket, concentration risk—the risk of having too many eggs in one basket—is a grave and dire threat. And it’s one that is most often masked by opaque supply chains.

Without a holistic view of your end-to-end value chain, and the relationships it’s comprised of, supplier diversification—a popular risk mitigation tactic—is somewhat of a farce. Although looking at your first tier supply base it may look like you’ve managed to diversify, if you lift the veil and drill further down into your lower tiers, you may discover your suppliers are all fully reliant on the same source for the same critical raw material or component.

Increasingly, companies are finding themselves having to compete for scarce materials and resources, in some cases, made by a relatively small selection of suppliers. And as fundamental supply chain resources such warehousing space and ocean containers run short, it’s not just the making of, but the movement of your goods that’s at risk.

In this new norm supply chains are plagued with volatility and uncertainty. Identifying your risks and safeguarding your continuity of business while delivering the entirety of the procurement and supply chain agenda requires radical transparency, drivers of change, and your suppliers’ best efforts and most valuable resources.

Enter, the ‘customer of choice’.

Customer of Choice: Securing Your Preferential Treatment

Treat others as you would like to be treated. Our mama’s and papa’s taught us well, but just as risk gets dropped for sake of competitive pressure, so do our manners, values and to some degree, perhaps even our ethics.

In the end, business is business after all, and as our customers and stakeholders drilled us for lowered costs, procurement, in turn, hammered their suppliers. Pinning one against the other, and always buying from the lowest bidder.

To minimize disruptions to plan, save on costs, optimize operational efficiencies, and ultimately, profit suppliers want business they can count—and make money—on. They want to innovate and bring new products to market and work in more sustainable ways. And so they look to partner with customers who will ongoingly support their long term growth and prosperity.

By taking the focus away from cost reductions and collaboratively engaging on larger organisational initiatives that provide opportunities for improvements and idea creations, you can entrench yourself as a ‘customer of choice‘.

In an upturned market, when sellers hold the cards, becoming a ‘customer of choice’ is a strategic play and a significant competitive advantage that leads to lasting resilience, allowing you to mitigate your risks by securing preferential treatment in all areas- cost, technology, innovation, risk and critically, availability of supply.

Your Ambassadors of Change

Times are changing, and quickly so.

As we said in our case study, once upon a time, not so very long ago, it was common practice for organisations to uphold little to no ongoing Corporate Social Responsibility (CSR) compliance checks.

Although CSR and supply chain visibility were once unpopular topics with suppliers choosing to keep their cards close to their chest, there is now an increased propensity for supporting critical environmental & social initiatives that lay beyond the reach and visibility of customers. Thus, your tier-1 suppliers may be your strongest allies, ambassadors of change that will advocate for advancements on your behalf.

Let’s take a look at some of those more pragmatic, resilience-building approaches you may want to devise and deploy.

Radical Supply Chain Transparency

Today’s intricate and interdependent global supply chains are peppered with risk of all sorts and require the type of radical transparency that allows you to identify risk, establish trust and build contingency plans.

Besides concentration risks and availability of supply, there are many other types of risk that could impact your brand reputation, impair your service levels, decrease operational efficiencies, and hamper financial outcomes, including:

• Security and movement of assets
• Supplier solvency
• Poor quality or service levels
• Legal and regulatory compliance requirements
• Sustainability and ethical sourcing
• Cybersecurity and data protection
• Geopolitical uncertainty leading to:
  • Increased tariffs or taxation
  • Capital controls
  • Embargos or trade bans
  • Economic sanctions

To garner the level of radical transparency required to effectively thwart your threats—most notably those that lay within the intersections of ESG, geopolitics and global supply networks—one must firmly establish themselves as a trustful long-term partner and a ‘customer of choice’.

The Transferring of Risk

Risk can’t always be avoided, but it can be transferred, or at least shared.

Despite the extra costs, during times of uncertainty, buffer inventories are the guardrails that keep your operations moving, dampening the impacts of shocks by literally buying you time to respond. Risk-sharing contracts may perhaps not be a new concept, but they do seem to go underutilized and yet are worthy of consideration as they help to mitigate the risks of supply and demand mismatches and price volatility.

Besides transferring risk, data transparency is another key element to risk management that all supply partners may benefit from when critical information triggers action.

Data-First Risk Management

Data science is changing the face of risk management, taking messy unstructured data and

turning it into actionable insights. Identify a high-risk supplier, monitor regulatory compliance, trigger contingency plans through push notifications, and be advised of the customers that are at risk. Today’s tech is enabling proactive, timely risk management for ultimate resilience.

By empowering companies with probability-weighted projections and enabling them to digitally map their supply chains, increase visibility and identify threats and even prescribe action plans, current tech can enable timely, fact-based decision making.

Becoming a Customer of Choice, It’s Time to Step Up

To continue to deliver our ‘value’ targets while building lasting resilience, we must work together with our suppliers, to innovate and progress.  Yet, according to Harvard Business Review, 92% per cent of businesses don’t have close relationships with their suppliers.

Although it’s bad news for many, it represents an immense opportunity for you to step up, collaboratively engage in that relationship and claim that valuable position as a Customer of Choice.

Find out more about how you could be leaking revenue through poor supplier relationship management in The 4 Pillars of Business Relationships.

Ready to learn how Suppeco can help you establish a vibrant supplier ecosystem built on trust and collaborative innovation so you can become a ‘Customer of Choice’? Contact us now.