Nothing Easy About Supplier Relationship Management

In recent weeks, I’ve come across several articles underscoring how much more difficult, risky, and complex supplier relationship management is becoming. Here are some of the headlines, along with a few excerpts:

Bar Association warns corporations: Clean up supply chains (Star Tribune, Nov. 29, 2014):

By year’s end, chief executives at all of America’s Fortune 500 companies should get a letter signed by the president of the American Bar Association. Commit to ending human-rights abuses in your supply chain, the letter will say. Even though a recent U.S. Supreme Court decision has made it harder to hold U.S. companies liable for child labor, slavery, human trafficking and dangerous working conditions among their suppliers, the risks to corporate brands grows by the day, said Chris Johnson, the former general counsel of General Motors North America who heads the ABA business section’s supply-chain initiative. “Regulation is increasing,” Johnson said. “Litigation is increasing. It’s astounding to me that companies don’t get out ahead of this. It’s a time bomb.”

Companies Turning a Blind Eye to Supply Chains (WSJ, Dec. 23, 2014, sub. req’d)

Sixty-one percent of the 300 supply chain professionals in North America, Europe and South America who were asked said their companies don’t perform anti-bribery and corruption audits on their suppliers, and one-third of the firms issue contracts without having an anti-bribery or anti-corruption policy for their main suppliers…The survey, due to be released in January by global supplier information management firm Achilles, found 55% of respondents said their businesses don’t carry out checks on financial reports, while 35% of businesses don’t perform health and safety audits…Even though there are rules around the world mandating companies perform proper due diligence on their suppliers and their supply chains, Mr. Chamberlain [CEO of Achilles] said recent scandals show a lack of enforcement by regulators and a decision by some companies not to take these rules seriously.

One in five suppliers bullied, says UK small business lobby (Financial Times, Dec. 11, 2014):

One in five small UK businesses is bullied by the big companies they supply, according to research by the Federation of Small Businesses…The businesses surveyed by the FSB said the common practices that caused them the greatest difficulty were pay to stay fees, excessively long payment terms, discounts for prompt payment, and retrospective discounting — the practice of reducing outstanding money owed to a supplier by, for example, demanding “marketing contributions”.

Airbus reshuffles top team to keep tabs on supply chain (Financial Times, Dec. 16, 2014):

Airbus is bolstering its executive committee to keep a closer eye on its supply chain ahead of one of the biggest production challenges in its history…While Airbus is confident it is ready [to accelerate production of the wide-body A350], executives have privately conceded that the biggest risks lie with suppliers which will have to be closely monitored to make sure they are up to the challenge.

Can you aspire to have end-to-end supply chain visibility, which is what every manufacturer and retailer wants in order to become more agile and responsive, without also accepting end-to-end responsibility? I addressed that question in a post last summer, where I shared my perspective:

The scope of end-to-end supply chain visibility must go beyond the status of orders, shipments, and inventory — it must also include having timely, accurate, and complete visibility to labor, safety, environmental, and legal practices across the entire supply chain.

This is by no means an easy task, especially for companies with complex, global supply chains. Just look at all the time, money, and resources companies like Intel are investing to discover, report, and eliminate the use of conflict minerals in their supply chains. Companies are also making similar efforts to eliminate slave labor from their supply chains.

Not an easy task, but a necessary one.

It’s also a legal requirement, with various laws already in place related to supply chain transparency, such as the California Transparency in Supply Chains Act of 2010, which went into effect in January 2012, and the Dodd-Frank Act’s Conflict Minerals disclosure rules, which went into effect in late 2012. However, those rules apply mostly to large, publicly-traded companies, and as noted earlier, some companies have not taken those rules very seriously, and neither have regulators.

Simply put, when it comes to improving supply chain transparency and compliance, companies and their suppliers have a lot more work to do. But progress will continue to be slow and difficult if companies and their suppliers don’t also transform the way they work together — that is, if companies continue to take a “What’s In It for Me?” approach to working with suppliers, and suppliers continue to feel like they are being bullied by their customers.

There’s nothing easy about supplier relationship management these days, and it’s bound to get more difficult in the months and years ahead, but there’s one thing that remains the same: you can’t build and manage a successful business relationship without trust and communication. Earn each other’s trust, and the rest will follow.

For related commentary, please see: