Dealing with supply risk: becoming a customer of choice
Risk Reduction remains at the top of the priority list for procurement teams all across Australia in September 2021 (refer to Figure 1). Our ongoing study into how more than 400 organisations responded to the COVID induced crisis consistently shows the importance that supply risk mitigation played. Probably not very surprising, but how exactly are these organisations dealing with the supply risk? What can you learn and adopt?
As a response to COVID-19, 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.