How to Partner with Suppliers Experiencing Financial Hardship

Organizations that are fast-tracking digital transformation to improve supply base visibility will rise to the top while organizations that hold back will be late out of the gate when the markets return to normal. 

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Tuesday, April 14, 2020

Organizations that are fast-tracking digital transformation to improve supply base visibility will rise to the top while organizations that hold back will be late out of the gate when the markets return to normal. 

The past months have made one thing clear: Visibility into the supply base is murky at best, especially when it comes to Tier 2 and Tier 3 suppliers. If there was ever a time for procurement to flex, it’s now. Many suppliers – and buyers – are understandably facing financial uncertainty and distress, but that’s no reason to take a scorched Earth approach when it comes to your supplier relationship management strategy. Organizations are depending on their procurement teams to ensure business continuity. This will require the utilization of soft skills such as relationship management, active listening, patience, teamwork and supplier collaboration to drive hard bargains through spend analysis, contract management and negotiation.

To make the best of a disrupted supply chain, use the following steps to partner with strategic suppliers who may be experiencing financial hardship. Doing so will make you a customer of choice, solidify your supply base and create long-term, sustainable value through innovation.

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1. Empathize

When a major disruption happens – whether it’s a tsunami, earthquake, hurricane or global pandemic – it’s not a time to point fingers and assign blame. Suppliers may have lost a significant amount of their workforce and are potentially facing financial distress due to cancelled orders.

Check in on your suppliers frequently and demonstrate concern for their pain points. Every conversation doesn’t need to be about the business. Remember, your suppliers are human beings with families, too. Active listening will build trust as well as help you identify how you can work together.

Having all your supplier contact information in one place makes quick work of this process. Take active notes so your team can have the full picture of each supplier’s status.

2. Map Your Supply Chain

Once you have an understanding of the challenges that your suppliers are facing, it’s time to begin mapping your supply chain, which will identify suppliers with whom you can form strategic partnerships.

Mapping your supply chain is an opportunity to reshape your supplier relationships and provides more visibility into your supply base. How intricate your map is, depends on the resources you have available. It could be as simple as identifying your major suppliers or you can get more granular into Tier 2 and Tier 3 suppliers.

A lot of the legwork can be taken out of supply chain mapping when suppliers are able to manage their own profiles by uploading certifications, files, contracts, and other documentation.

3. Collaborate

After establishing trust with your suppliers through empathy and active listening, then mapping your supply chain for a 360-degree view of your supply base, it’s time to collaborate with your strategic suppliers and turn the conversation to exploring new terms that are mutually beneficial. After all, it’s in everyone’s interest to maintain business continuity.

If your supplier is experiencing immediate financial distress and your organization has liquidity, consider discussing more favorable payment terms in exchange for cash payments. Daily changing market conditions make moving quickly paramount, so having a contract management software is essential.

Your contract management software should include templates, version control, stakeholder access and, importantly for teams working remotely, DocuSign eSignatures. By speeding up the contract process, you’ll be able to secure more favorable payment terms that benefit all involved parties while managing for risk and reducing administrative costs and contracting cycle times.

4. Innovate

Drastic times call for drastic solutions. Developing a culture of innovation starts with internal collaboration among key stakeholders and taking those goals out to your suppliers. Supplier segmentation will help you identify the suppliers who have the potential to become strategic partners, but there must also be a supplier friendly process in place, with risks and rewards shared equally.

While supply chain disruptions can create negative outcomes for both the organization and suppliers, it can also be used as a learning opportunity to train staff on contingency planning for supply chain resiliency as well as refining the soft skills mentioned above.

By empathizing with your suppliers, mapping your supply chain for complete visibility and collaborating on mutually beneficial terms, you are opening the door for innovation with your suppliers that will provide long-term, sustainable value to your organization.

Want to know more about how to handle and solve the challenges in the midst of a crisis?
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