Covid-19 and Supplier Relationship Management (SRM)
Coronavirus (COVID19) is having a significant effect around the world for individuals in terms of the way we work and live our daily lives. It is having some challenging impacts on our procurement and supply chain professionals too. As the situation continues to develop and change, it impacts procurement professionals on both a micro and macro level. These challenges will need to be resolved through reimagined local and re-thought global supply chains. We need to think about both the immediate term and the future if we are to navigate and understand the ‘new normal’. A more cooperative climate for procurement and supply chain professionals may well be one of the long-term key impacts of Covid-19.
Companies that maintain good relationships with their suppliers will reap the benefits during and after the coronavirus pandemic; however, the current situation is highlighting the “good and bad” work of procurement teams in regards to supplier relationship management (SRM). The current challenges faced by any supply chain are predominantly around logistics and labour, rather than the supply of goods; although in some sectors such as health and pharma, this too is a problem.
The key elements of SRM can and must still be applied:
§ Supplier Segmentation: make sure you recognise and manage suppliers and your relationship with them, in accordance with where they sit in your segmentation. Ensure routine purchases continue. Make sure you stay close to and communicate with your strategic suppliers. Continue to discuss risks and leverage opportunities with those in other segments. Effective SRM concentrates procurement resources on the strategic relationships.
§ Governance and Organisation: maintain the day-to-day supplier management activities such as contract management, financial management, and issue resolution. Watch out for “red flags”, triggers and escalation paths for supplier issue resolution.
§ Supplier Development: despite the Covid-19 crisis there are opportunities to be had. Repurposing of manufacturing, entering new markets with new products; a prime example of this being the Ventilator Challenge UK (VCUK) consortium, which included firms such as Penlon, Airbus, UK-based Formula One teams and Siemens.
§ Service Levels and Performance Management: There will still be the contract and the obligations of both parties to deliver in accordance with that contract. Procurement teams should consider alternative means of dispute resolution, such as breathing space in the form of temporary relief for firms unable to fulfil contracts, and negotiation. Be flexible with each other, maintain strong communications and agree solutions that work for both parties will ensure ongoing resilience and success.
Be mindful though, once promises have been made, it is important to stick to them. This will build trust, helping suppliers in the event that a similar conversation is held in the future.
Customers and suppliers who adapt to keep supply chains moving will be more resilient to disruption and will be more capable of adapting to the ‘new normal’ in the future. Looking for the common goals for both businesses. We are all naturally optimists, even though our colleagues may think otherwise. Leverage that optimism and support your suppliers with good examples of SRM as we all navigate these unprecedented times.