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 of challenges that continue to plague companies in defining long-term supply chain strategies, who to partner with and how to engage.
Of paramount importance to any successful company in navigating these variables is managing the evolving shipper relationship. To illustrate its importance, I offer the following hypothetical example: You’re shopping online for a present for your spouse’s/partner’s birthday. You find the perfect gift, a Widget. And not just any Widget, but an Acme Widget. As anyone knows, authentic Acme Widgets are expensive — $200 — and you begin comparison shopping online. Most are selling in the $185-$210 range, but you discover one that is selling for just $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. Hmmm .. They’re offering a massive discount, but with your spouse’s/partner’s birthday just days away, 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 for your spouse/partner (after all, last year’s gift — socks — hardly earned you much good will), 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, buyer, supply-chain and production professionals find themselves in today. More and more factors are weighing into sourcing decisions linked to pricing, quality, lead-time, responsiveness, environmental, social and supporting activities of the vendor / supplier.
Of course, industry dynamics have a huge impact on the relative power of the buyer – seller relationship and the structure of the engagement, there are however some general characteristics aside from price, quality and features that determine the nature of engagement and to what degree an organization should view a supplier as strategic versus transactional.
- Resource / Capability Control: Sellers who control rare or finite capabilities / resources have significant power in dictating price and terms, for example 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 up with premium audio brands to enhance their products.
- Proximity to Market: How close is the seller to market and how quickly can the vendor match demand? Everyone wants to be selling ice cream on a hot day at the beach.
- Innovation: Are products uniquely innovative to provide a competitive advantage?
- Social / Ethical Approach: The impact of negative exposure from social / ethical challenges has created many media challenges and investigations from authorities. Compliant and ethical approaches must be critical in any vendor / supplier relationship.
- Environmental: Ensuring environmental performance is critical in developing sustainable relationships.
The relative importance of these variables should be assessed in relation to the importance of the product being sourced to the company. If you are buying commodities then many do not apply, however strategic or differentiating items require more weighing up of the factors and respective trade-offs.
The world continues to grow smaller yet more complex, with variables that pose ongoing challenges to the sourcing and supply chain management. For this reason, vendor assessment and engagement will become more complex with more variables added to the mix.