5 Ways to Improve Vendor Communications in a Supply Chain Crisis

As the people who supply your company with the goods and services it needs to operate, vendors deserve respect. Depending on your specific role, they may even be your best friends, able to help you out of challenging situations — a fact that's come to light during the global pandemic and subsequent supply chain disruptions.

Some of the inventory outages, incorrect orders, missed shipping dates, general misunderstandings, and other chaos may have been avoided with stronger vendor relationships. These bonds help companies reduce risk, avert disruption, and keep the flow of goods moving.

"The pandemic has reinforced the need to talk to your supply chain partners," said John Cullen, FCMA, CGMA, emeritus professor of management accounting at Sheffield University Management School in the UK. "No organization exists in isolation."

Cullen said the pandemic has also forced finance professionals and CFOs to think outside the four walls of their own companies and work more interdependently with their supply chain partners. "The focus has shifted towards transparency across the supply chain," he said, "where everyone has to work towards ensuring that end users receive good value."

To get all focused on those goals, here are five ideas to aid better communication with your vendors:

Accept that power has shifted

"The bargaining power and position between buyers and suppliers has completely shifted," said Nicolas Walden, senior adviser in The Hackett Group's Procurement Advisory membership program in London. "At this point, the power is pretty much in the hands of suppliers."

Plagued by supply constraints, finance professionals accept this reality and concentrate on securing suppliers that want to partner and fulfil their obligations over the long term. "It's no longer only about cost savings," Walden explained. "It's about getting the goods while minimizing the extra costs related to that transaction."

This dynamic isn't expected to shift in 2022, Walden added, which means financial professionals should start talking to vendors differently now.

A good starting point is to stop focusing solely on price and look at what else the supplier brings to the table outside of just lowest cost. Does it consistently deliver on time? Is it pushing your orders ahead of others because your company is a longtime partner (which is happening more in the current environment)? Is it offering more favorable payment terms in times of economic uncertainty? These are all factors that should come into play when negotiating and working with suppliers.

Drop the silos

Open your mind to the fact that supply chain management crosses organizational boundaries. In other words, an inventory shortage isn't just the warehouse manager's or chief procurement officer's problem; it's everyone's problem.

"Stop focusing solely on what's happening within your own department or organization," Cullen advised. A good starting point is the sharing of data, forecasts, and other information with suppliers that may have previously been out of the loop.

"There are costs that can be reduced and value that can be added when supply chain partners actually talk to one another and share information," said Cullen, who tells financial professionals to think beyond recording costs, profits, and revenues during these conversations. "Instead, get engaged in the communications process and work to influence those factors," he added.

To drop the silos, be willing to take on responsibilities that may not have always fallen into your area of expertise or comfort zone, e.g., helping to address inventory shortages, and open up the lines of communication between your department and your company's suppliers. This will also help reduce and/or eliminate duplication of effort — a common problem in today's supply chains.

Think relational versus transactional

When you think beyond the single transaction, you have the chance to reward vendors for their performance for meeting KPIs. "This reinforcement will be more productive than just handing out 'failure' notices when the goods aren't delivered on time," Cullen said.

To create even warmer vendor relationships, Cullen suggests a win-win approach that shows suppliers the value they bring to your company's supply chain and your firm's interest in their long-term success.

"There's always going to be suspicion that someone is trying to take advantage of the situation," he said. "It's up to you to convince your vendors that it's in their best interest to work with you, versus just saying, 'We want this at this price and within this timeframe.”

Develop and share your forecasts

In today's business environment, catching suppliers off-guard with large, unexpected orders is a recipe for failure. To avoid this situation, Gilles Bonelli, associate principal at The Hackett Group in London, said financial professionals should be sharpening their forecasting skills, leveraging the right information, technology, and processes to anticipate future demand conditions.

These steps are often those needed in order to create and share forecasts that are usable with suppliers at the right time. "The reason why companies, and the finance function in particular, [have] been a bit unfair to suppliers at times is because they lacked the right forecasting capabilities," Bonelli pointed out. "That absence of leading-edge forecasting capabilities creates uncertainty."

Avoid this trap by nailing down your forecasts, sharing them with your vendors, and then working together to ensure that, first, your suppliers can meet their commitments, and second, your customers get the goods and services they need in a timely manner. "We're seeing a lot of emphasis on the forecasting area right now, and for good reason," Bonelli said.

Establish trust

This may be easier said than done in the competitive business environment, but establishing trust is a core tenet of effective vendor communications. If suppliers think you're only trying to beat them down on price, take advantage of them, or delay payment, they'll sell their goods and services to someone else.

The business climate is in their favor, which means you'll have to work that much harder to form and nurture these bonds. "Senior finance stakeholders have a definite role to play in discussions with suppliers," Walden said, "and in demonstrating that specific relationships with certain suppliers are important and strategic for their companies."

Being seen and demonstrating that commitment are both crucial to establishing trust. Candid conversations about your company's current supply chain challenges, for example, may open up the opportunity to collaborate with vendors in solving those issues.

"In the spirit of partnership, ask suppliers to share their own challenges, and do what you can to help them sort through those issues," Walden added. "As senior stakeholders, finance professionals can play a valuable role in these conversations."

(Source: AICPA & CIMA – CPA Letter Daily – Financial Management – January 20, 2022)