By Neil Wheeldon
Only one thing is certain in today’s global supply chain: uncertainty. Rising political unrest, increased frequency of natural disasters, financial-market fluctuations and labor disputes are just a few of the myriad challenges that continue to plague companies in defining long-term supply chain strategies, including who to partner with and how to engage.
Of paramount importance to any successful company navigating these variables is managing the evolving shipper relationship. To illustrate its importance, consider this example: You’re shopping online for a present for your spouse’s/partner’s birthday. You find the perfect gift: a widget. It’s not just any widget, but an Acme widget. Authentic Acme widgets are expensive — US$200 — and you begin comparison shopping online. Most are selling in the $185-$210 range, but you discover one that is selling for only $120.
Intrigued, you look at the seller’s website, as you don’t recognize the name. The “contact us” address is from a post-office box in New Jersey, giving you cause for pause. The seller is offering a massive discount, but with your spouse’s/partner’s birthday just days away, you wonder, “What if the retailer is unreliable and the gift arrives late? Or worse, what if it never arrives at all?” Weighing the risk of coming up empty handed — after all, last year’s gift of socks hardly earned you much goodwill — you pay $190 from a reputable seller and receive the gift on time. The potential savings from the unknown seller was tempting, but the certainty of receiving the right gift at the right time was critical.
Such is the role that many procurement, supply chain and production professionals find themselves in today. An increasing number of factors — such as a supplier’s pricing, quality, lead time and responsiveness — weigh into sourcing decisions.
Of course, industry dynamics have a huge impact on the relative power of the buyer-seller relationship and its structure. There are, however, characteristics aside from price, quality and the like that determine the nature of engagement, as well as whether an organization should view a supplier as strategic versus transactional:
Resource/capability control. Sellers that control rare or finite capabilities or resources have significant power in dictating price and terms. One example is the diamond mining industry, where a small number of mining companies control global production.
Brand. Does the seller’s brand by association support and enhance the product offering? For example, many car manufacturers are teaming with premium sound-system brands to enhance their vehicles.
Proximity to market. How close is the seller to market? How quickly can the supplier match demand? Everyone wants to sell ice cream on a hot day at the beach.
Innovation. Are products uniquely innovative to provide a competitive advantage?
Social/ethical approach. Legal and ethical lapses can have major consequences, like investigations from authorities and negative media exposure. Compliant and ethical approaches are critical in any supplier relationship.
Environmental. Ensuring environmental performance is critical in developing sustainable relationships.
The importance of these variables should be assessed in relation to the importance of the product sourced. Many of the variables do not apply in commodities procurement. However, strategic or differentiated items require further weighing of factors and trade-offs.
The world continues to grow smaller yet more complex, with variables that pose ongoing challenges to sourcing and supply chain management — particularly supplier assessment and engagement.
Neil Wheeldon is vice president — solutions at BDP International in The Hague, Netherlands.