Driving Supply Chain AGILITY and RESILIENCE through STRATEGIC SOURCING and INSIGHTFUL NEGOTIATION
Supply Chain of a business refers to; linkages of activities and processes involved in its supply-network.
These may include; Materials supply, Production, Warehousing, Distribution or Transportation of goods and services, from point of origin to that of consumption.
In this article, I’d like to look at how a manufacturing business can gain and maintain Supply Chain agility and resilience through strategic supplier sourcing and insightful procurement negotiation.
Supply Chain Agility in this case, would refer to; the ability by the manufacturer to quickly detect new developments in the market (be it threats or an opportunities), and be able to adjust and mount an effective response.
Supply Chain Resilience on the other hand is; about the endurance by a business and its supply-network to go through sudden or disruptive events and emerge from it unscathed, or with negligible damage.
A manufacturing company needs agility and resilience in its operation. For that is how it will effectively adapt to changes in the market.
A competitive advantage every business requires to achieve sustainable success.
However, the supply chain is an interlinked network made up of several overlapping entities, functions and processes. Where a breakdown in one function affect operations of the entire network.
It is for this reason that a manufacturing company (like all parties in the network) should ensure that its supply network is as functional as it should. Because that is the foundation for his agility and resilience.
Question would then be; how does a manufacturing business ensure that its supply network functions as it should? The quick answer would be; back to basics.
Key supplies are the life-blood to any business operation.
The way a manufacturing company strategically sources its key supplies, and the way it insightfully negotiates for the delivery of those supplies, determine its agility and resilience levels — moving forward.
In this article we focus on two key Supply Chain areas or strategic tasks, that can assist a manufacturing business in gaining agility and resilience in response to unexpected changes or developments in the market.
These key areas are:
- Strategic Supplier Sourcing and
- Insightful Procurement Negotiation.
Strategic Supplier Sourcing is the organized approach businesses use to gather information on potential suppliers, in order to find and contract the best possible supplier with whom to build a strong (strategic) relationship.
As a strategic task, strategic supplier sourcing, go beyond the formal purchasing process of; RFx (RFI, RFP, RFQ, RFB) or Carter’s 10c Model, to include; analysis and analytics with regards to the long term benefit and competitive advantage a supplier would bring to the business.
From such a detailed supplier analysis (preferably with the help of reliable analytics technology), the buyer is able to determine whether the supplier is a complete package, potentially up to the task, or not.
However, it is rare that a business will find a supplier that is a complete package ready to hit the ground running and meet delivery specifications.
It usually takes time, and supplier development program is often provided by the buyer in order to capacitate and align strategic supplier’s quality with the business’ standard.
It is the capacitation and integration of strategic supplier’s products with buyer’s operational standards, that strengthens supply network and enables the business to gain the necessary agility and resilience.
Lest we forget, we are operating in disaster-prone times, with a global supply chain that is fragmentated — as COVID-19 clearly exposed this fact.
Gone are the days when manufacturers would have complete faith in their suppliers and bothered less about their supply networks.
In this day and age, manufacturer’s knowledge and visibility in to his supply network should go beyond tier1 and tier2. It has to extend all the way to the original source.
That is how a manufacturer will truly build the required agility, resilience and responsiveness to survive and thrive in this erratic global economy we operate in.
Perhaps it explains why other businesses and manufacturers alike, opt for strategies like; Vertical Integration and Horizontal Integration.
- Vertical integration a strategy used to control one’s supply network.
In this case, a manufacturer can reduce cost and increase efficiency by gaining control over its suppliers, distributors and retail locations, to ensure maximum agility, resilience and responsiveness.
- Horizontal integration, although controversial in some quarters due to its monopolistic nature, horizontal integration is a strategy that can assist a manufacturer in gaining competitive advantage, maintaining operational and quality standards, and ascertaining availability of key supplies as and when required.
It is without any doubt that to gain and maintain a consistent, reliable and seamless flow of materials and other supplies in to the production line, the manufacturer will need to gain visibility and control of the supply network.
However, gaining required visibility will depend on how the manufacturer insightfully negotiates and drafts a procurement contract with his strategic supplier.
That is another key focus area of this article.
Negotiation is a vital procurement step, where a buyer strategically engage a supplier or vendor, in order to obtain required supplies on favourable terms and conditions.
Unfortunately, balance of power usually plays a huge role in negotiations. As such, it becomes even trickier when the supplier is more powerful than the buyer.
The Harvard Business Review (HBR) suggests steps on how to negotiating with powerful suppliers:
Insightful negotiations are futuristic in nature.
Hence, the manufacturer will in this case carefully select ideal suppliers, and with foresight negotiate for strategic supplies, so as to secure the steady flow of these critical supplies — way into the future.
But in a situation where, a manufacturer comes across a powerful supplier, and realizes engaging this big supplier would compromise the manufacturer’s ability to gain full visibility and control of the supply network, as would be required, then, choosing to engage a smaller but capable supplier(s) is a better option.
However, dealing with smaller suppliers often comes with its own challenges. And the issue of supplier development comes back to the fore.
Supplier development is vital, especially in the orientation stages of the relationship.
On Supplier development, The Chartered Institute of Procurement and Supply (CIPS) says; “Supplier development is closely related to supplier relationship management and is the process of working with certain suppliers on a one-to-one basis to improve their performance for the benefit of the buying organisation.”
Contracting and developing a supplier to a required level, maximizes buyer’s (manufacturer) visibility and control over supply network processes.
The best approach to ensuring agility and resilience.
It is also important to always remember that; a company no matter its size, is in the business to make profit and grow.
Foresighted negotiations should therefore, ensure that negotiations for strategic supplies are based on mutual benefit and end in a win-win outcome.
Because, the end outcome is what will motivate the supplier to perform with utmost conviction and remain loyal to the contract — moving forward.
It is also worth mentioning that; the amount of time spent preparing for a negotiation is more important than the amount of time spent in the actual negotiations.
It is for this reason that some field experts suggests that; preparations for negotiations should account for three quarters (¾) of total amount of time spent.
Which means, the actual spent in actual negotiations should account for only a quarter (¼) of the total time spent.
Likewise, where (despite all efforts) negotiations fail to yield best results, it is normal to apply; Best Alternative To A Negotiated Agreement (BATNA).
As a theory, BATNA is an alternative course of action taken, when negotiations fail to reach mutual agreement — as anticipated.
But where negotiations are aimed at maximizing visibility into a supply network, so as to gain the required agility and resilience, then, BATNA can not serve the purpose.
Conclusion
We live in an increasingly unpredictable world. A manufacturer just like any business, needs agility and resilience to effectively respond to unpredictable changes in the market and the economy at large.
Supplier of key or strategic items to a manufacturing plant, is in essence a long-term partner, and the source of manufacturer’s agility and resilience.
In addition to; Strategic supplier sourcing and insightful negotiations for key supplies, Collaboration, Respect and Honesty when dealing with suppliers — in pursuit of mutually beneficial outcomes, is what will greatly contribute towards achieving and sustaining agility, resilience, competence and success for the manufacturing business.
