Dealing with supply risk: becoming a customer of choice
Risk reduction is your priority
It was most visible in the COVID years of 2020 and 2021 but is still top of mind for many procurement teams right across Australia: Supply Risk mitigation. Our ongoing study into more than 590 organisations shows that value creation is top of mind right at the moment. But with inflation still riding high and the economic fortunes likely to turn in the short term, assuring the supply base and its viability remains an important goal. So how exactly are organisations dealing with mitigation of supply risk? What can you learn and adopt?
Figure 1: Relative importance of supply risk mitigation
Over the past five years, Australian procurement teams turned to a closer and more integrated relationship with their suppliers to mitigate supply risks and become a customer of choice. This follows the realisation that suppliers would more likely go above and beyond for a client who is most easy to work with.
Many participants of our study used the pandemic to improve their vendor management processes and to build genuine partnerships sharing all known issues and challenges. Many got to know the operations of their supply chain and where exactly the risks existed. They also accepted higher costs, at least temporarily, and were prepared to share the burden of mitigating the risks with their supply base.
Other procurement teams became a mediator between their own business units and the suppliers, ensuring that expectations are managed at both ends.
Another piece of the puzzle was to improve planning, often having joint demand planning meetings with suppliers and seeking their assurances that demand can be met. Increasing stock levels and accepting longer lead times are further standard responses to mitigating supply risk.
More innovative approaches were also used, such as coordinating with other customers of a specific supplier to aggregate supply, decrease risk and shipment costs.
Hopefully, many of these tactics will be embedded in the long term, as organisations recognise their value in becoming a customer of choice.