Jason Busch made some observations on his Spend Matters blog relative to a recent editorial appearing in the Wall Street Journal. This opinion piece, United They’ll Stand, was written by Professor Robert Handfield from North Carolina State University in Raleigh, and essentially delivers the message that the decisions of supply-chain managers in the current aftereffects of the severe economic crisis may be among the most important they’ll ever make. This sometimes requires a rethinking of their relationships with their key suppliers. I urge my readers to review this editorial, since Professor Hatfield delivers very succinct and timely messages for our community.
Jason calls attention to another blog posting penned by Gartner Industry Analyst Debbie Wilson. Ms. Wilson’s premise is that while she conceptually agrees with Handfield, these recommendations are deeply flawed because of certain business or industry realities. I disagree with Ms. Wilson, and will respond to each of her points:
- Ms. Wilson states that many if not most companies simply do not have the funds available to provide financial assistance to suppliers, and protecting your own interests outweighs that of a supplier. My response is that this is exactly the thinking that I suspect Dr. Handfield has challenged. Making some efforts to keep key suppliers financially viable protects any customer’s interests. Financial assistance can take many forms, from more timely payments for services, to a helping hand in any and all areas of business. Toyota and other leading-edge companies do not shy from reaching out to key suppliers in times of crisis, and key suppliers have, in-turn reached out to Toyota in times of crisis. As many companies have learned the hard way, when major disruption occurs in your supply chain, you certainly expect your key suppliers to respond proactively. So why not do the same when these same suppliers face crisis.
- Ms. Wilson points out that many troubled suppliers require too much assistance for any one customer to get them on their feet again. My response is that this statement is too generalized. Not all suppliers fall into this broad generalization, so don’t use it.
- Ms. Wilson further observes that the most vulnerable suppliers are those that populate a severely troubled industry, such as the U.S. automotive industry, and how can a buyer help out multiple distressed suppliers. To some extent this is true, but not all automotive Tier One suppliers suffer from the most severe problems. Some of the most savvy automotive suppliers have built new relationships with stronger OEM’s, some of which were foreign based such as Honda, Toyota, and others. It’s a two-way street. In the specific case of the U.S. automotive industry, the government has deemed that the industry is strategic to the economy, and has stepped in to assist certain key suppliers.
- Last, but not least, Ms. Wilson states that a supplier that has systemic issues achieving profitability isn’t the best candidate for being a “strategic supplier”. This is once again just too broad a generalization. Isn’t it more difficult and costly to locate and qualify a new supplier, than to assist a trusted supplier? If Ms. Wilson and other procurement professionals were a bit more open-minded in their thinking, there would be a more open-minded lens that systemic issues of supplier profitability may have been caused by the strategies that always placed that supplier at a disadvantage in price negotiations or reverse auctions. Perhaps that supplier is strategic because they are one of few vendors that can supply a product, or hold patent to a product. Again, let’s not generalize.
The bottom line is that Dr. Handfield has raised some practical observations and recommendations in his opinion piece. I, for one, will include them in my consul to companies and clients, since they make very practical sense for these extraordinary economic times.