As companies grow, so does the complexity of their supply chains. CEO of Terra Exports, Nils Goldschmidt, highlights 3 key strategies for overcoming and managing the challenges and risks associated with global, and local, supply chains.
With recent travel restrictions, border closures, and global lockdowns, COVID-19 has only further intensified these challenges. In fact, The Institute for Supply Management conducted a survey that found that 75% of companies are experiencing supply chain disruptions as a result of COVID-19. This comes as no surprise since over 200 of the Fortune Global 500 companies have a presence in Wuhan, where the COVID-19 outbreak began.
- Ensuring that who you’re dealing with is trustworthy and reliable – while it is rare, there are suppliers out there looking to scam people.
- Quality and condition of goods – suppliers may not pack goods in a way that meets the quality and condition requirements of the market it’s going to or the quality that is agreed upon.
- Volume – suppliers sometimes do not have the volume required, nor the ability to ship what they have promised to ship.
- Unreasonable payment terms – payment terms will vary from industry to industry, and from supplier to supplier. Generally, you want as much time as you can get to pay your suppliers. However, it can be difficult to find a balance that benefits both parties.
- Communication – lack of communication of potential issues well in advance is a common issue. Without effective and proactive communication, issues can be amplified and it becomes harder to manage risks.
According to Nils, there is no way to have complete control over the risks. However, you can minimize liabilities by using proper technology and working with serious people. He recommends following three best practices to ensure you get a good night’s sleep.
1. Develop and Nurture Supplier Relationships
Your suppliers are not just your vendors, they are also your partners. This partnership should not only be based on financial transactions, but also on mutual trust and loyalty. Proactive communication is key to building and nurturing trusting relationships. The better you know your suppliers, and the better they know you, the more likely you are to benefit from dedicated service, preferential pricing, and special terms.
“We are always in constant communication with our suppliers to understand their capabilities and current availability situation within the season”, shares Nils.
In fact, a study conducted by Banco Bci found that 22.6% of businesses were unaware of supply chain incidents that caused significant disruptions within their operations. Having a strong relationship with your suppliers based on clear communication allows both parties to be made aware of current performance, as well as opportunities for improvement and issues that arise. This prevents the likelihood of significant disruptions and allows for more effective risk management.
2. Always have a Plan B and C
“We always ensure we have a “plan B” and sometimes even a “plan C” in case suppliers are not able to meet our volume and/or quality requirements,” commented Nils. Developing a great relationship with your supplier is crucial. However, if a crisis occurs and you don’t have a plan B in place, you could expose your company to significant risks.
This is why it is vital to consider how your company strategizes to ensure supply chain performance, as well as whether the plan will be sufficient in the case of a crisis. According to the CIPS, 66% of businesses do not have a plan B in the case of supply chain emergencies. Therefore, by having one in place, you are able to manage risks, keep operations flowing, and gain a competitive advantage in times of crisis.
Occasionally, issues with the quality or volume of goods may still arise, despite clear communication and a plan B. In this case, Nils suggests, “it’s good to have someone from your team or an outside inspector supervise the packing process to make sure things are going smoothly.”
3. Become a Solution for your Supplier rather than a Problem
“Try to show that you can handle a greater variety of products rather than just asking for those that are in highest demand and everyone else is also looking for,” mentions Nils. Most companies focus on what suppliers can do for them rather than on what they can do to help the supplier. A true partnership involves a symbiotic relationship. Both parties should benefit, and both parties should work hard to make the other’s job easier.
Information is the grease that makes an integrated supply chain work. Waiting to share critical volume and timing information with suppliers can create lost business for the company or excess inventory and added costs for suppliers. Sharing information constantly, with appropriate security and confidentiality, is critical for successfully managing a supplier relationship.