With inflation hampering product sales and price rises, manufacturers have profits to protect. Many will react, as the sector has done for decades, by beating down their suppliers on price.
All this does, though, is bounce the problem around the supply chain. It drains suppliers of the resources they need to deliver vital enhancements — including supplies, information, and ideas — which brands require to be competitive.
So, how can manufacturers protect profits while keeping clear of significant risks and open to new opportunities?
By helping their suppliers be data-sharing trading partners, brands can keep a competitive edge despite inflation.
1-See suppliers as collaborative partners.
The best thing brands can do to cut costs through suppliers is to partner with them through collaboration. This empowers suppliers to give their best, and when suppliers can give their best, brands are better placed to extract the value they need — such as quality ingredients, compliance information and ideas for innovation — in addition to reducing costs.
Therefore, the solution to managing profits in inflation is not to squeeze suppliers. It’s to give them a helpful experience. If there is one thing brands really need in order to collaborate with their suppliers, it’s trustworthy data.
2-Build from the data up.
When better to establish dependable supplier data than the moment each new supplier is integrated? Data is at the heart of every good supplier interaction. Without it, suppliers have a tough time working with brands and struggle to provide essential information. And without this information, brands are blind to social and environmental risks. Additionally, they miss opportunities such as to innovate sustainably and elevate their reputations.
When suppliers struggle to work with a brand, they’re also less inclined to go the extra mile — a recent HICX study shows that suppliers are 20% more likely to prioritize an order if they’re low on stock for a customer-of-choice.
The best supplier data is in the form of a “single source of truth.” When data is considered trustworthy, brands can make the working relationship significantly easier. This simplifies what it takes to receive helpful supplies, information, and ideas. Underpinning these goals is reliable supplier data, the collection and safeguarding of which should be established early.
3-Safeguard data integrity
Getting this right also requires brands to control how changes to the data are managed. There is a simple analogy with removing plastic from the world’s oceans — it’s pointless cleaning 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. A ‘single front door’ through which all new data and all changes to existing data must pass, is essential. That door has both a technical and a governance role: it disables any other systems from making changes and governs who can make changes and under what circumstances.
4-Smooth out communication friction.
When supplier data is compromised, brands can’t communicate well with all their suppliers. Too often, they send long surveys to suppliers to receive information to manage risks and opportunities. And too often, the task is irrelevant to many of the recipients.
For example, an initiative to determine how many product packaging suppliers in the U.S.A. comply with sustainability regulations might go to every packaging supplier in every country, including those who sell boxes for shipping. Each of these businesses would have to engage with the survey to determine whether it applies to them. This costs them time. Big brands might not directly feel the consequences, but logic dictates that it will be harder for these suppliers to give them quality information and work efficiently.
Thankfully, the reverse is also true. Brands that receive and store accurate supplier data — including contacts, plant-level, global and local data — properly and at the start of each new relationship can communicate better with their suppliers. This creates the perfect conditions to find cost-savings together, while keeping sight of compliance risks and ways to innovate.
5-Don’t accept supplier friction.
While it’s sensible for brands to steady these communication issues from the outset, suppliers face many other bugbears. Late payments, unrealistic expectations and confusing technology are just some of the challenges. Brands can invest in supplier relations by understanding the friction points that their people, processes and technology put on suppliers — and by adopting truly supplier-friendly mindsets and technologies to work with all suppliers from day one.
Forward-thinking brands lead the way
It’s one thing to give a handful of strategic suppliers a helpful experience, but if brands do so across the network, they can successfully reach their goals at scale. Every supplier should be treated as a partner. Encouragingly, forward-thinking brands such as Mondelez, Unilever, Mars and more, are already collaborating with all their suppliers.
We need more manufacturers to join the “supplier experience” movement. Because as we weather the cost-of-living crisis, the route to staying profitable and competitive is through mutual success.
About the author
Costas Xyloyiannis is co-founder and CEO of HICX, a supplier experience management platform.
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