Are You BFFs With Your Vendors?

Global competition means that businesses are under pressure to partner with suppliers based on price alone. But when crisis strikes, relationships can be far more important than the lowest price. And it is this pressure to compete on price that has led many businesses to increasingly outsource their functions to partner organizations. 

"What's happening with increased globalization, single and just-in-time sourcing has really increased the vulnerability of supply chains. There are so many changes underway - we're all in learning mode now," said Joseph Tinetti, head of Property for Zurich Global Corporate in North America. "Companies need to get outside of their own four walls and protect their revenue streams and assets and use the same due diligence they do with their suppliers as they do with their own assets."

Due diligence might include researching any litigation the vendor may have been involved with, visiting their locations, and demanding contracts that protect you in the event of a disruption. 

But investing in relationship management may be a less tangible, but equally powerful hedge against disaster, experts say. One Accenture survey found that businesses that had strong supplier relationship management achieved savings of 3 percent on their total annual procurement spend from supplier relationship management activities whereas all other respondents achieved 1 percent savings.

Smaller companies may be best served by contracting multiple suppliers for a single product or service, which mitigates the risk that any single vendor goes down. Likewise, avoid reliance on just-in-time parts by stockpiling any critical parts. Meanwhile, larger companies should find ways to build relationships with vendors that makes the relationship mutually important - and bumps your business to priority status above others in the time of disaster. But communications at multiple levels of the relationship can help foresee risks brewing, and increases the chances of priority service in the event of a disruption. For example, product managers at both the client and vendor may have a rapport that the sales and purchasing representatives do not.