In Recession and Recovery, Putting Supplier Relationships First (Part 1)

By Jason Busch on July 27, 2010

In the second post in this series later today, I will share some findings from recent IACCM research and analysis suggesting that many procurement organizations believe that it is their charter to focus on supplier relationships, management and overall development, but that they rarely prioritize these sorts of investments over those in core purchasing automation and sourcing areas. In this first post of this mini-series examining the topic of putting relationships first, below, I’ll suggest a few of the symptoms that can result from backburnering relationship management in favor of just focusing on purchase cost reduction and item-level savings.

And in the coming weeks, I’ll offer up a prescription — a relationship management cocktail, if you will — for putting supplier engagement and development back on track, even in an environment where your team is feeling the heat to drive savings and efficiency gains. Let’s start this examination by sharing five of the most common symptoms I’ve observed when relationship management is not a priority:

Overall supplier risk goes up — The incidents of supplier failure, disruptions, negative impact on brands, customers, etc. increases as a result of a failure to effectively manage relationships. Why? Those companies focusing on relationship management can often intervene early as initial symptoms of underlying risk maladies and overall business risk present themselves versus waiting for early symptoms to manifest into a dangerous state.
The cost of supplier risk incidents increases — When procurement organizations fail to focus on relationships and delay intervention and supplier development engagement when risks present themselves, the potential cost of disruption can be significantly higher down the line. The other way of looking at this is just as much of the cost of a widget is locked in during the design phase and is harder to impact later in the sourcing process, the longer an organization waits to insert itself in many types of risk incidents, the more costly intervention and responses can become, as speed becomes paramount and indirect and direct costs increase (e.g., shutting down a line)…