Why you need a collaborative supply chain now more than ever
By ATB Financial 17 June 2020 6 min read
A business owner’s relationship with suppliers should be like dating, says Gary Loblick, a consultant in the Alberta manufacturing industry. “You see each other for a bit and see if you can trust one another,” he adds.
Assessing your value chains as the COVID-19 pandemic has paused some functions of your business is a valuable exercise. The urgency might be ratcheted up significantly because of the daily shifts to your business brought on by the pandemic and customer behaviour, but to remain resilient and efficient you’ll want to begin to consider finding a partner who’s unafraid of commitment.
Essentially, what Loblick and other experts suggest to forward-thinking businesses is establishing strong partnerships across the supply chain in order to create lasting strategic alliances benefitting both your business and your customers.
Mastering supply chain management
The disruption in the supply chain for Alberta businesses has been multi-pronged, says Q Rasi, Director, Advisory Solutions at ATB. He refers to a range of challenges Alberta business owners face, such as unexpected supply and demand shocks and distribution constraints, which invite “market misalignments on the demand side which impact the supply side of the equation, and it gets worse when coupled with global trade restrictions, layoffs and business closures.”
Today especially, you need to recognize how important it is to boost the visibility of your supply chain, says Loblick. How else can you assess the best types of supplier partnerships if you’re not aware of more than just Tier 1 suppliers and operations?
After all, as Deloitte reported in a recent survey, 47 per cent of companies don’t have a strategic backup plan for factory or distribution centre shutdown.
“There isn’t one manufacturer that is fully integrated,” Loblick stresses, “and it takes the complete integration of various suppliers to reach one end goal. So shouldn’t procurement become a key part of the conversation among top-level managers?”
He cites an example familiar to Albertans: in oil and gas suppose you make oil patch equipment and you need parts that come through subcontracted machine shops, and those shops have to receive other components somewhere else.
“You, as the original designer of the equipment, know all about the designs and how the pieces can fit together. So, you should be knowledgeable about all the partners you have, and identify any weak links in the chain.”
Brian Dumsday, a partner at Edmonton-based BWDumsday and Associates, echoes Loblick.
“You want to look at Tier 2 customers and suppliers as a whole, as an organization, so you can find the opportunity to become more efficient.”
There’s data to back up these assertions of how full visibility and integration along the supply chain can assist businesses, especially during times of procurement and supply chain disruption. A University of Tennessee study found that supply chains benefit in many ways from collaboration, even in times of severe economic stress. These benefits extend beyond improved efficiency and effectiveness to include helping all the supply chain members meet customer demands, grow markets and increase competitive market share.
Innovation invigorates these collaborative relationships, the study goes on to say, by increasing sales volume from downstream buyers, decreasing operational costs within the relationship, through word-of-mouth referrals, and new product and process streamlining stemming from the working relationship between trusting partners.
Dumsday also stresses how, like with any relationship, communication should be transparent and honest between the business and suppliers. Also, be clear about supply volume and changes to demand volume for the next few quarters.
Shuttering supply chain data and details in black boxes to try and achieve competitive advantages won’t work in today’s market, especially when a pandemic has brought havoc to core operations. Sharing supply chain information with businesses will uncover what can be tweaked and finessed, what’s obsolete and outdated, and what needs to be implemented ASAP.
What Japanese car manufacturers got right
In North America, we often think of our supply chain relationships with too short-term of an outlook, Dumsday says. We want the cheapest applicant to the RFP we issued, and we’re also unnecessarily competitive with our own suppliers, eroding the trust needed to cement any kind of long-term business relationship.
So, who’s doing it right with collaborative supply chain management? Loblick offers the classic example of Japanese auto manufacturers such as Honda and Nissan.
“They create hugely successful value chains and share ideas with each other and accelerate each other’s ability to innovate. Toyota innovates a quarter of the time on average, and the rest of the innovation comes from their value chain.”
The thing is, if you want to do business with Honda as a supplier, you have to perform at very high standards, Loblick adds.
“That’s why they can do things so quickly and make it difficult for others to compete. And the usual pushback I always hear is, ‘Oh that’s Toyota, they’re a major global firm, we’re just a small business here.’ You can accomplish things faster than your competitors no matter your size, even if you have next to no resources. But you have to build relationships, and that takes time. You can’t just walk and form an alliance right away.”
An MIT report on Japanese auto supply chains described the impact they had on Western counterparts. “Some skeptics claimed that lean manufacturing would never work in North America, considering the continent’s size and transportation systems that might not be able to deliver materials reliably just in time. But Japanese companies in the United States seemed to prove otherwise. US automobile manufacturers began following the lead of their Japanese counterparts, transforming themselves in the lean direction and demanding JIT logistics from their suppliers.”
Going provincial with new suppliers
What may benefit some businesses is building a collaborative supply chain with local suppliers in Alberta or Western Canada, as opposed to less expensive options in countries such as China. Well, less expensive on paper.
Every business should look at a contract through an installed cost lens, which means not just considering the figure on the invoice but factors such as transportation delays, political issues affecting the supplier’s region (e.g., the recent China-US tariffs). Since delays can be an added cost, it’s ideal to forecast some kind of expenses due to pandemic-related delays, especially if Canada announces restrictions due to a second wave.
If you like that face-to-face relationship, too, you might not be able to engender enough trust and respect from each other, or feel comfortable addressing conflict beyond emails and phone calls.
Strong supplier relationships are built on visibility, often quite literally, says Dumsday.
“I like the idea of my supplier being a 20-minute drive away, say, instead of a flight across the world, even if it’s just to be there in person to ask about increasing the supply this week,” he says. “And these days, you might feel more comfortable driving somewhere, rather than flying to visit your offshore manufacturer.”
Alberta businesses shouldn’t be short-sighted about what’s available within their own borders, adds Loblick.
“The pandemic gives us an opportunity to pause, take a look at our suppliers and reevaluate our plan going forward. Maybe you’ll realize there are great firms in Alberta who do fantastic work with their value chains.”