In a few short weeks, the business climate with which we had become accustomed was no longer. America and the rest of the world are faced with the greatest crisis of financial confidence since the Great Depression. Recent turns in the financial industry are producing dramatic changes; reckless lending and speculation have resulted in “pennies on the dollar” sales of major banks and investment firms. Stock markets are plummeting. Bail outs have yet to have an impact. Without question, this is an uncertain and frightening time for many. Shifts in financial markets, like many other dynamics of change, will present a unique challenge to supply chain management.

The immediate impact of credit freezes may result in hardships to businesses small and large. Firms whose cash reserves are modest and may have relied on loans to purchase inventory or even make payroll are faced with difficult choices. Suddenly, suppliers who may have established a sterling record of dependability might struggle to meet order commitments or lack the personnel to process and deliver in a timely fashion. Stock outs and extended delivery cycles are on the horizon.

Dynamic shifts often result in dynamic, sometimes polar opposite, responses. Some supply chain managers will, no doubt, scramble to replace struggling suppliers immediately. Others will express their loyalty by hanging in to the bitter end. Neither response is in the better interests of sound supply chain management. The savvy supply chain manager will see these dynamic shifts as an opportunity to enhance supplier relations and better prepare for rough waters ahead. To that end, consider the following:
  • Investigate suppliers carefully before making transitions. While the rumor mill may be telling you that a supplier’s failure is imminent, and rumors often have weight, sound relationships merit informed decision making.
  • Direct and penetrating communication is your best asset in determining your suppliers near and far term viability. It’s often the case that fear and uncertainty result in decreased communication. Those who do not shrink from addressing tough issues will be ahead of the curve in responding to evolving supplier capabilities.
  • Pulling the plug on a valued relationship can have a rebound effect. Firms can quickly establish a business reputation as being capricious or even disloyal.
  • Patience and understanding now can result in leverage later. Procurement often turns a kind eye to suppliers who have given special consideration or expanded service under unique circumstances, even paying a premium for those benefits. It’s reasonable to think that suppliers will be so inclined for customers who are patient and understanding through tough times.
  • The current climate represents a unique opportunity to justify increased and expanded sourcing events. Establishing qualified alternative suppliers is critical to avoiding extended order cycles or even interruptions in supply.
While the hard dollar shifts in business represent serious challenges for all of us, we need to keep in mind that every challenge represents opportunity to gain competitive advantage. It is critical that supply chain managers remain undaunted by the emotional impact of an uncertain horizon and proceed with the vision of a strong supply base in the future. While the dynamics of financial changes are clearly measurable and quantifiable, the drivers behind the changes are, in many cases, emotional. Those who leverage change as means to tackle supplier interactions with clear, precise communication and work to expand their supply base will enjoy the benefits of enhanced existing supplier relations and a more robust supply base as well.

There’s no question that supply chain managers have some rough waters ahead. As always, the best sailors will manage to navigate the smoothest possible ride.
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