The golden rule delivers a golden advantage.
While the pandemic brought on a whole host of challenges such as non-availability of materials, longer lead times and broken promises to customers, 2022 has delivered high-inflation/high-cost challenges that many Supply Chain leaders haven't had to deal with in their career. And now, even more cost pressure driving material, commodity, and transportation prices even higher, making it cost-prohibitive to stockpile and carry extra inventory (assuming you even have the opportunity to do so).
If you have already tried everything from finding new suppliers to alternate materials, you can probably guess that neither of these strategies are going to be any more effective in the current inflationary environment. The reality is the economic downturn is going to make things worse. More suppliers could go out of business, piling on additional delays and costs.
But there may be one thing that you haven’t yet tried, especially if your own planning, scheduling, and communication practises are in disarray, or you’re feeling frustrated and continually disappointed by your partners. It really is as simple as the golden rule: Be a better customer to your suppliers and treat them the way you’d like to be treated with more reliability, more consistency, and more communications.
This means figuring out how to plan and schedule better in a dynamic, constantly shifting environment.
It’s not easy, and it requires a high degree of process discipline to chip away at the variability that’s wreaking havoc on the supply chain. But when you make the effort, it can pay off in the form of reciprocal dependability from the partners upon which your business relies. That can make a bottom-line difference at a time when your organisation needs it most.
Here are five proven ways to be the kind of customer that gets preferential (and inflation-mitigating) treatment from your suppliers.
- Improve collaboration both upstream and downstream. This begins with a more in-depth understanding of your customers’ volume needs as well as their expectations around lead times. While inflation will likely cause demand to shrink or at least to shift, it will also drive up service level expectations as companies have to compete more aggressively to win their share of a declining pool of orders. Once you know what you need and when you need it to fulfil your customers’ requirements, you then need to better understand what it will take for suppliers and transportation partners to align with those requirements. Being clear on partners’ lead times and constraints, and factoring that into your planning and scheduling processes, will let you determine the right parameters for when to order and ship materials, components, and parts.
- Be willing to negotiate. As your customers push you for better service, you need to work with your suppliers to find ways to meet those demands. Don’t set your suppliers and partners up to fail by asking for what they cannot deliver. Instead, show a willingness to be flexible and adjust your ordering times or volumes accordingly to better mesh with their capabilities. Smaller, more frequent orders can take pressure off a supplier or logistics partner to fulfil a large quantity all at once. And it can set you up as an ongoing source of repeat, reliable, manageable business.
- Optimise your inventory levels. Better understanding the situation both up and downstream is the key to determining the optimised level of inventory to support your customers while accounting for any supplier constraints. Companies learnt the hard way in the aftermath of the pandemic that inflating orders to meet fluctuating or unpredictable demand can result in a massive inventory hangover that suddenly is much more expensive to maintain in today’s high-cost environment. Improving planning and scheduling and working closely with suppliers and partners to stay on top of lead times will help you keep inventory levels and costs as low as possible while keeping operations running to meet demand.
- Stick to your plan. If you’ve done a good job forecasting and understanding ordering parameters based on suppliers’ capabilities and constraints, you should be able to stick to the parameters without constant adjustments. This is probably going to mean not overpromising to your customers and putting both yourself and your suppliers at risk of underdelivering. It will also mean not ordering more than you really need sooner than you need it to create a buffer. Remaining as even keeled and consistent as you can during these turbulent times can set you apart from your competitors both in the eyes of your suppliers and your customers.
- Communicate early and often. While it’s important to avoid unnecessary or last-minute changes, the reality is that markets are volatile right now. Forecasts are going to change as demand continues to shift. Stay ahead of the shifts as much as possible through good S&OP processes and keep your suppliers in the loop at all times. Share forecasts and changes in planning levels so suppliers always know what to expect well in advance. Again, demonstrate a willingness to be flexible and arrive at order volumes and lead times that will work for both of you as demand and the market situation changes and evolves.
Be the customer that makes the first move.
In any relationship, being the party that shows consideration for the other party’s needs can go a long way toward strengthening collaboration and creating mutually beneficial advantages. In your supplier and logics partner relationships, it could set you up to be the company that receives priority treatment in allocation situations or other circumstances where companies must choose which customer to serve, and which to disappoint.
Commit to the discipline and process it takes to become a well-organised, willing to negotiate, and constantly communicating business partner. And you can expect your suppliers to return the favor. This will help you more confidently reduce inventory levels and avoid future supply disruptions and the high costs that come with them. In an environment where nothing else is working, being the best customer may be the best (and possibly only) way to optimise your supply chain and your inventory costs.