While squeezing suppliers on price may seem a safer substitute to shrinking product sizes, holding prices, and then displaying this move to shoppers, it is counterproductive.
The old practice of beating suppliers down on price doesn’t work in today’s uncertain landscape.
Now, businesses need resilience. But they will find themselves in a bind if they use suppliers to cut costs, writes HICX’s CEO and supplier expert, Costas Xyloyiannis.
This doesn’t mean excluding suppliers from savings strategies, because suppliers have a host of value and cost-saving opportunities to offer.
How then, do we proceed? The trick is to stop beating suppliers down on price and to start viewing them as partners.
It’s time for change
In the past, business leaders looking to protect their profits have relied on their peers in procurement to push suppliers for lower prices. But this is no longer feasible. Now, suppliers have more agency than ever before, and businesses really need them. We saw this shift during the Covid-19 pandemic when suddenly businesses became incredibly dependent on suppliers. They needed their suppliers’ best work, most helpful information and unwavering loyalty – and had to treat them accordingly.
A few years on, the relationship is still evolving towards equality. Macroeconomic events such as climate change and sanctions, have ensured that businesses continue to need suppliers and it’s now more important than ever to be a customer-of-choice. A recent HICX survey showed that a staggering 73% of suppliers for some of the world’s biggest manufacturers would “go the extra mile” for their most important customer if this was also a customer-of-choice. For clients holding this status, 70% of suppliers would also prioritise their orders if stock happened to be low.
Yet, businesses don’t make it easy for suppliers to do business with them. The same study revealed that more than 60% of suppliers find it challenging to do their best work for big customers. Given that suppliers now hold more agency, it’s time for businesses to make work easier for them and create a more equal relationship.
Apart from gaining customer-of-choice status, by adopting this mindset, businesses can also empower suppliers to give their best. From this position, the parties can collaborate to find profitable solutions. Further, businesses that are supplier-friendly can receive additional forms of value – such as quality ingredients, compliance information, ideas for innovation and much more – with which to boost resilience.
In order to manage profits in inflation, therefore, businesses will benefit from giving suppliers the most helpful experience.
Deal with the data
The reason why many businesses don’t give suppliers the best experience is not because they want them to struggle, but because inaccurate supplier data gets in the way. This inaccurate data causes friction in the relationship, such as in the form of poor communication.
For example, when a business doesn’t have accurate data on all its suppliers, it becomes difficult to direct queries to the most relevant recipients. We see this in attempts to receive information from suppliers relating to regulatory needs, such as carbon footprint numbers, or calls for innovative ideas. Suppliers can’t be sure that the questionnaires they receive are indeed for them – and are expected to wade through the information to determine whether it applies. This can be a time-consuming and frustrating experience for suppliers.
On a practical note, it also stops suppliers from giving the business vital information. Without this information brands face a competitive disadvantage because they can easily miss compliance risks as well as opportunities to innovate or to elevate their reputations.
Instead, businesses need to be resilient so it’s worthwhile addressing the supplier data issue.
The best way to do this is to prioritise having a golden source of truth in supplier data. Businesses can achieve this by collecting reliable information at the start of each new supplier relationship and then governing the quality of data. They can control how changes to supplier data are managed by restricting data from entering the system with a single front door. There is a simple analogy with removing plastic from the world’s oceans—it’s pointless to clean what’s already there while neglecting to address future pollution. Rather, invest disproportionately in preventing future plastic from entering the water. The same is true with supplier data.
Communicate better
When supplier data is managed well, businesses can use it to communicate well with all their suppliers and provide the most helpful experience. This of course means happier suppliers and a better chance of achieving the all-important customer-of-choice status.
Then, with the ideal conditions in place, businesses can work together with suppliers to find cost savings. Additionally, they can receive vital information with which to manage risks and opportunities and be resilient.
If manufacturers accept that it’s time for change and then fix their data and communication issues, then they can boost supplier experience and explore solutions to save costs – in the most collaborative, advantageous way possible.
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