Investing in your Suppliers

 

Supplier relationships have always been front and center in the procurement world. They are pivotal to ensure operations are not disrupted, value is being created and performance measures are being met. Suppliers come in all shapes and sizes and have a varying degree of priority for each company. Oftentimes preferred suppliers get the front row from management however it is important to give focus and attention to the smaller guys as well who may provide a strategic advantage. In looking at suppliers there are direct and indirect. Direct being those that provide inputs for a final end product and indirect those that provide services enabling business operation.

In difficult times supplier relationships can become an organizational asset, ensuring that your businesses’ needs get the priority that they deserve. Commonly SRM or Supplier Relationship Management has been deployed to help keep both supplier metrics and relationships in check. However, one thing not commonly employed is joint ventures/partnerships or investments. Since the pandemic began one company, Stanley Black & Decker, is utilizing investments to build strategic alliances across its supplier base as noted in a recent WSJ article dated 6/18/21. The concept is relatively simple, Stanley Black & Decker will co-invest a substantial sum of money into the suppliers operations. This investment may be in a needed production line or other delivery mechanism for an end product that will be purchased by Stanley Black & Decker.

In this particular situation Stanley Black & Decker is interested in securing scarce battery and chip resources in todays marketplace. This is a great strategic move to shore up scarce resources. We are seeing chip shortages impact automobiles, computers, phones and gaming systems across the board. Employing an investment strategy can help ensure that your organization can have access to the right materials at the right time. If a supplier does not have any affiliation or deep connection to your organization they will be less willing to prioritize your needs above other customers on their list.

While some may view this practice as costly it actually can be advantageous in the long run. Employing this strategy can lead to a lower overall cost of business especially when supply chains are pushed to their max capacity as we have seen during the COVID pandemic. Taking an investment approach can be especially impactful for those suppliers who are small, growing and show a lot of future promise. These early consequential investments will help grow trust, partnership and collaboration that is sure to serve well into the future. Structure your organizations supply base with the right mix of diverse suppliers and supply relationships to serve your organization in good times and bad. The payoff will be immense and help to give you both upside and protect any potential downside.

Supply relationships and having the right inputs at the right times can have immense consequences on your organizations bottom line and financial performance. Remember the correct investments will not only lead to a positive and high ROI but will also help maintain the right relationships to help give your organization a strategic advantage.