By building better relationships with all suppliers (and not just a strategic few), brands can remain cost efficient, competitive and profitable, writes Costas Xyloyiannis
With inflation slowing down sales and blocking price rises, manufacturers are feeling the pinch. Many will react, as the sector has done for decades, by beating down suppliers on price. All this does though is bounce the problem around the supply chain. It drains suppliers of the resources they need to deliver vital enhancements – including supplies, information, and ideas – without which, brands are less competitive.
In today’s economic environment, which is riddled with uncertainty, this is not a position in which brands can afford to be. Rather, the goal is to be as resilient as possible. So, how can they protect these benefits in addition to their profits?
I strongly believe that brands can address this conundrum by supporting their Chief Procurement Officers to change how they work with suppliers.
Here are my top three tips.
- View suppliers as partners
Historically, brands have relied upon their procurement teams to manage costs through suppliers. This has been the function’s role for decades, but times are changing. Today, procurement leaders are starting to see that they need suppliers – they need their information, loyalty and best work. The Covid-19 pandemic made it clear that brands can no longer just treat suppliers as a means through which to save money. And other macro events, such as climate change and sanctions, have left business and procurement leaders more dependent on suppliers.
A mindset change is necessary. It’s time for brands to collaborate with suppliers, like partners in the same ecosystem. This empowers suppliers to give their best, and when this happens, brands are better placed to extract the value they need – such as quality ingredients, compliance information and ideas for innovation – in addition to reducing costs.
Therefore, the solution to managing profits in inflation is not to squeeze suppliers. It’s to give them a helpful experience. I like to think of this as Supplier Experience Management, a principle that champions a harmonious relationship with suppliers – one that’s conducive to suppliers giving their best work, and brands getting the best data.
- Address the data problem
When better to establish dependable supplier data than the moment each new supplier is integrated? Data is at the heart of every good supplier interaction. Without it, suppliers have a tough time working with brands and struggle to provide essential information. And without this information, brands are blind to social and environmental risks. Additionally, they miss opportunities such as to innovate sustainably and elevate their reputations.
When suppliers struggle to work with a brand, they’re also less inclined to go the extra mile – a recent HICX study shows that suppliers are 20 percent more likely to prioritise an order if they’re low on stock for a customer-of-choice.
The best supplier data is in the form of a “single source of truth”. When data is considered trustworthy, brands can make the working relationship significantly easier. This simplifies what it takes to receive helpful supplies, information and ideas. Underpinning these goals is reliable supplier data, the collection and safeguarding of which should be instituted early.
Getting this right also requires brands to control how changes to the data are managed. There is a simple analogy with removing plastic from the world’s oceans – it’s pointless cleaning what’s already there while neglecting to address future pollution. Rather, invest disproportionately in preventing future plastic from entering the water. The same is true with supplier data. A ‘single front door’ through which all new data and all changes to existing data must pass, is essential. That door has both a technical and a governance role: it disables any other systems from making changes and governs who can make changes and under what circumstances.
- Smooth out supplier friction
When supplier data is compromised, brands can’t communicate well with all their suppliers. Too often, they send long surveys to suppliers in order to receive back information with which to manage risks and opportunities. And too often, the task is irrelevant to many of the recipients. For example, an initiative to determine how many product packaging suppliers in the USA comply with sustainability regulations might go to every packaging supplier in every country – including those who sell boxes for shipping. Each of these businesses would have to engage with the survey to determine whether it applies to them. This costs them time. Big brands might not directly feel the consequences, but logic dictates that it will be harder for these suppliers to give them quality information and work efficiently.
Thankfully, the reverse is also true. Brands that receive and store accurate supplier data – including contacts, plant-level, global and local data – properly and at the start of each new relationship can communicate better with their suppliers. This creates the perfect conditions in which to find cost-savings together while keeping sight of compliance risks and ways to innovate.
While it’s sensible for brands to steady these communication issues from the outset, suppliers face many other bugbears. Late payments, unrealistic expectations and confusing technology are just some of the challenges. The HICX study suggests that big brands don’t really know what their suppliers are experiencing. Three-quarters of suppliers say that the review performance metrics which their customers use are more useful to the brand than to them. Nealy half say they find it difficult to resolve queries with the brands they serve, and more than 60 percent find it challenging to do their best work for their most important customer.
If brands understand the friction points that they’re people, processes and technology put on suppliers, then they can better invest in fixing the relationship. But doing so will require leaders to adopt supplier-friendly mindsets and technologies through which to work with suppliers – from day one.
It’s one thing to give a handful of strategic suppliers a helpful experience, but if brands do so across the supplier network, they can successfully reach their goals at scale. Every supplier should be treated as a partner. Encouragingly, forward-thinking brands such as Mondelez, Unilever, Mars and more, are already collaborating with all their suppliers.
In conclusion, we need more manufacturers to join the “supplier experience” movement. Because as we weather the cost-of-living crisis the only way we can remain profitable – as well as competitive – is to deliberately improve how we work with all our suppliers.
Costas Xyloyiannis is CEO of HICX
