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The Financial Express

Supply relationship management: A driver of sustainable supply chain during pandemic


Supply relationship management: A driver of sustainable supply chain during pandemic

The economy of Bangladesh is growing rapidly and is booming due to the strong growth of its manufacturing, exports and foreign remittances. The country is also a major beneficiary of globalisation. But due to the current pandemic situation, the entire economy is facing a threat similar to other affected countries. The barriers to imports, exports and also local transportations has affected the trade sectors heavily and disrupted the entire supply chain.

Supply Chain is a popular term used to align customer needs with the key business practices, starting from the ultimate user to the original manufacturer. One of the key objectives of supply chain is to fulfil customer demands through the most efficient use of resources including right materials, labour and proper distribution channel.

Due to the prevailing Covid-19 crisis we are observing that the country's entire backward & forward linkagesrelating to the supply chain activities have been disrupted. Some of the key affected areas are:

■ Materials: Inadequate supply of raw materials or finished products coming from or routed through logistical hubs.

■ Labor: Shortage of labor due most likely to quarantine guidelines, fears or illness.

■ Sourcing: Restricted access to certain areas, limiting the ability to discover, qualify and certify new business or programs and  transact business.

■ Logistics: Traditional channels and supply network are experiencing restrictions regarding capability and availability; even if necessary materials are available, they would be stuck elsewhere. At present, it is also a challenge to find alternative routes and means of transportation.

■ Consumers: Over cautiousness among the consumers in their purchasing habits due to fears about physical contact at public placesleading to exposure to the virus, while reduction intheir purchasing power is another reason. Many may turn to online sales, posing a challenge to the logistics networks.

On the basis of the above portrayal of a disruptions, it is very hard to respond to the condition when we are focusing on the progress of business and trade. On the other hand, operation of the entire supply chain ion is facing challenges. However, we are observing that in spite of the endless challenges, some business activities are still running to keep our daily lives moving and behind-the-scene suppliers from various levels are playing a pivotal role in running those business operations effectively. Therefore, from now  onin the post-pandemic period, supplier relationship  management (SRM) can play a vital role in continuing the smoothness of the operation efficiency.

Supplier relationship management (SRM) is a well-defined practice of building relationships with third-party entities that supply products and/or services to an organisation in order to capitalise on the value of these relationships. In practice, SRM demands creation of a closer, more cooperative relationships with key suppliers in order to reveal and recognise new values and reduce the risk of failure.

A well-defined SRM practice is important for an organisation due to the following reasons:

■ Ensures a sustainable source of supply;

■ Reduce costs/generate savings;

■ Increases efficiency;

■ Reduces price volatility risk;

l Ensures continuous improvement of business opportunity through knowledge sharing with suppliers;

Considering the importance of SRM in current business, one of the leading research and advisory company, Gartner, Inc., has published Gartner's 4-Step framework to implement an effective supplier relationship management program dated 31 October 2019. This study highlighted that "SRM is an enterprise approach used to leverage increased supplier collaboration as a source of competitive advantage. SRM goes deeper than traditional supplier management, as it focuses on deploying a combination of tactics aimed at maximising joint value with different supplier segments."

To implement an effective SRM program in an organisation, their identified four steps are as follows:

To implement this framework in Bangladesh, it is necessary to create a relative environment first in the organisation and then Gartner's approach can be implemented accordingly. Considering the Bangladesh perspective, following SRM methodology can be implemented:

Appropriate on boarding/ enrolment process:

Business leaders have identified that successful supplier enrolment is an important factor in meeting business goals. The relationship with a supplier starts through a defined supplier on boarding process and in order to maintain effective supplier relationships and streamline communications, the organization needs to have the right enrolment approach. However, in Bangladesh, we find rarely such practices. Many organizations don't even maintain any supplier records or database properly which presents the first and  foremost obstacle to building relationships. Therefore from the SRM perspective, business entities should follow a suitable enrolment approach to make sure long-run advantage.

Treating suppliers as partners; not vendors:

This is important for ensuring proper valuation of  our suppliers and treating suppliers as our partners. This treatment of partnership shouldn't be based only on the financial transactions but also on mutual trust and loyalty. It is necessary to make suppliers feel that they are business partners. Suppliers should be engaged in the change management program of the company and be informed about the upcoming new processes and policies, releases of new products and promotions, and taking feedbacks from suppliers can also be taken where applicable, considering the business confidentiality and trust.

Establishing positive organisational Image in the supplier market:

This is basically all about trust-building. Organisations should keep in mind that suppliers also measure their clients' performance. There are two important steps an organisation can follow to prove itself as a good client to the suppliers. Firstly, always pay bills on time as per payment terms. If it is not possible to make payment for any reason, let the supplier know as soon as possible. Secondly, give suppliers as much lead time as possible and be honest in projections.

Performance management:

A strategic buyer-supplier relationship can build through effective measurement of suppliers' performance. Through this process, an organisation can identify its suppliers' potentiality. In that way, we can segregate our strategic and operational suppliers.

Streamlining supplier base:

This means the strategic approach to rationalise the supplier base by reducing non-performing/ non-potential suppliers. Maintaining a small number of potential suppliers enables a smoother flow of information. In this way, it is easier to track suppliers and makes more productive relationships possible. It is also possible to avoid unnecessary complexity by maintaining fewer good suppliers.  Side by side with streamlining the pool, care  should be taken so that new potential suppliers get the opportunity as well.

Engagement and recognition program:

At this stage, an organisation can practice Gartner's 4-step process, discussed earlier, in Bangladesh. As indicated in the first step, we can design a package where program objectives, relevant stakeholders and implementation plans can be defined. Accordingly, we can align relevant stakeholders and implement programs. As a part of SRM initiatives, engagement and recognition programs can be of various types including quarterly business reviews, supplier summit, performance awards, suppliers' feedback surveys and others as applicable.

Supplier development initiatives:

The main objective of supplier development initiatives is to undertaketo improve performance of the first-tier suppliers. Through these development initiatives, suppliers' technical capabilities are expected to improve gradually  finallyto impact costs, quality, delivery performance and new innovations. Development initiatives can also be taken; such includes training, knowledge sharing, awareness programs and so on. These types of programs motivate suppliers to engage more with the buyer organizations. In the process, supplier development initiatives can also be associated with supplier relationship building and partnering programs.

We all know thatthough it is not a hard job to construct a framework or methodologies, yetit is not so easy to implement the above-mentioned initiatives overnight.

A structured approach to an effective SRM program can help the organisation minimise supply risk gradually over time. However, to respond to a crisis situation, some of the immediate SRM initiatives that an organization can take to reduce supply chain risk during this pandemic and post-pandemic times are as follows:

Firstly, list down all the suppliers' name and prepare an informative supplier database.

Secondly, work out to identify strategic and  operational suppliers.

Thirdly, clear all due payments on time, especially considering strategic suppliers; in some cases, the arrangement of supply chain financing can be a very fruitful initiative.

Fourthly, instantlycontact the strategic suppliers and be updated on the entire source operation and company activities.

Fifthly, share with them your company's upcoming plan regarding supplier development and other SRM initiatives  

The current scenario is very challenging for both suppliers and companies. The existing challenges might cause non-performance or service disruptions at the suppliers' end. To deal with the situation from the company's end, communicating with the suppliers about what they are experiencing is recommended.

Listening to the suppliers will give us a clear picture about the supplier' production capacity, plans, distribution efforts, and availability of employees. Being informed of their current situation, we can suggest how business can be helped.A collaborative approach regarding ideas can prove to be supportive of theirneeds and useful toaddress their issues.

Finally, I want to end the discussion with the opinion ofenhancing suppliers' relationship,building rather than diversifying the supply sources during in this crunch period. It seems to be a tendency that when we talk about overcoming supply chain disruptions, the first thing that comes to our mind is diversifying suppliers. It looks like an easier alternative, but finding an alternative solution or source of supply can be difficult in many cases. So, in the case of diversification difficulties, we should be looking for solutions within our existing boundaries, where relationship factors might work wonderfully. Regardless of the new reality, is businesses should build partnerships with suppliers to make a smart last-mile network.

 

The writer is working as Head of Supply Chain & Procurement in bKash Limited.

rashedul.alam@bkash.com

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