As originally published in ASI Adhesives & Sealants Industry on March 11, 2022
Partners are always prioritized over transactional suppliers during times of allocation and disruption.
Supply chain disruptions were up 88% in 2021, according to Resilinc, a leading supply chain risk monitoring and mapping solution. Lifesciences and healthcare were two of the industries most impacted by these record-breaking supply shortages. Companies across the board are experiencing vast raw material shortages and extended lead times, creating a never-ending cycle of disruptions.
Do you have suppliers or partners? Successful companies are stepping up their collaboration with partners.
During COVID, clients and colleagues realized there was far too much risk in their supply chain. For the most part, they realized the stark difference in requesting help from in-demand suppliers vs. collaborating jointly with supply chain partners. Given the robust demand for raw materials to successfully support key customer needs, suppliers have no choice but to prioritize. There is little doubt they are prioritizing strategic and profitable customers, as well as those with long-term agreements. In essence, they will fulfill customers that treat them as partners before those who see them as vendors. With the level of supply chain disruptions occurring, whether you have partners or suppliers is directly impacting revenue growth objectives.
Although heightened during the pandemic, partners are always prioritized over transactional suppliers during times of allocation and disruption. For example, a mid-market adult incontinence manufacturer partnered with critical material suppliers. Since they considered adhesives a critical raw material, they collaborated jointly on developing and upgrading materials, finding cost reduction opportunities without negatively impacting product performance, and on maximizing operational performance (reducing scrap and increasing efficiencies without creating additional quality defects).
The manufacturer was fair and upfront in communications and treated the adhesives supplier as a partner. When adhesives went on allocation, even though the manufacturer was a small fish in the pond, the large adhesives supplier prioritized their partner, thereby enabling the eventual successful sale of the company since the manufacturer was able to grow the business during turbulent times.
Another area of significant risk that has been exposed during the pandemic is the lack of backup sources of supply. For example, a client in Europe thought they had a backup source of supply to their China supplier because they had a secondary source in India; however, when COVID hit, neither supplier could deliver the requested materials. Another client had identified a backup source, but they did not utilize that source on an ongoing basis. Thus, when COVID created disruption in the supply chain, the backup source prioritized current clients.
On the other hand, a healthcare products manufacturer proved that even an expensive backup source of supply would prove extremely desirable as supply chain disruptions increase. In this situation, the CEO, vice president of operations, and director of procurement had to constantly defend why they were paying 20% more for the same nonwoven material as they could purchase from their primary supplier. The board of directors was not happy since this move reduced the bottom line.
The leaders stayed the course and kept purchasing 20% of their raw material needs from the backup supplier, however, in order to ensure continuity of supply and to innovate with a regional supplier. Eventually, a supply chain disruption arose, and the primary supplier located in Brazil couldn’t deliver materials on time because of delays in the ports. As planned, the backup supplier increased volume to support their partner. Additionally, the joint innovations resulted in further margin improvement.
Partnering for Success
Resilient and successful organizations are reevaluating suppliers, carefully selecting which suppliers to upgrade to partners, and staying on top of key partner relationships. Relationships will not be maintained by default.
Instead, the most successful companies are focusing on becoming a customer of choice. They are proactively communicating changes to forecasts, supplying resources to support key initiatives, jointly innovating for win-win solutions, and providing suggestions and recommendations for success. For example, a customer decided to coordinate loads with multiple suppliers so that their suppliers would gain priority access to trucks while sharing in cost savings.
Are you thinking like a partner, or are you negotiating with suppliers? Partners will speed by the competition and thrive post pandemic.