Managing Vendor Relationships & Risk during COVID-19
Your vendor management questions answered
In follow-up to our webinar Supply Chains in Crisis: Managing vendor relationships during times of disruption, we received a flurry of questions specific to the challenges webinar attendees are facing in their respective roles. We took some time to respond to each of these questions and listed our answers below.
Q: As an EMS provider, if most of our customers are cancelling orders and asking for payment terms extension, it is causing pressure to the cash flow internally. As such, it may not be an option to offer no cancellation of orders or extension of payment for downstream suppliers. In this case, what other tools can we use to better engage with strategic suppliers and gain better trust in this difficult time?
A: There are alternative financing options for companies in business today. Depending on where your suppliers are located, have them investigate government stimulus packages that offer extremely discounted and even 0% interest loans if they meet certain qualifications. Additionally, you can offer your suppliers discounts on invoice payments that provide mutual benefits for you and them.
Q: How do we establish the right balance between retrieving investment and supporting our suppliers through this crisis? Can you provide specific techniques to manage supplier relationships?
A: We should start by acknowledging the balancing act between managing your own business’s needs and that of your suppliers is quite precarious during these times. That said, there are some steps you can put into motion to safeguard your business and the supply chain you’ve worked hard to build.
There are two critical steps to initiate:
- Categorize suppliers into three levels by criticality to your business.
Organize your vendor universe to create communication tiers. This structure helps prioritize who you talk with and how frequently communication needs to occur. With thousands of suppliers in your chain, not all will get personal phone calls, but many absolutely should, and the remainder should receive email communication.
- Begin communication streams with your suppliers.
Contact your suppliers to talk with them about the importance of their business to your own. The goal of this conversation is to demonstrate your appreciation during these times and underscore the steadfastness needed from them at the same time. Reiterate the partnership you hold together and the value of maintaining this partnership in the years to come (well beyond this rough patch in time).
This should be a consistent conversation with them throughout the coming weeks – check in weekly or every other week. Continue to reinforce this message to show strength, partnership, and continuity in your agreement together.
As you talk with your suppliers, ask questions about how they are doing and where your business can help. You need to reinforce trust and partnership in your relationship, which makes tougher conversations easier later down the road. Coming at your initial conversations with empathy means, your supplier is more likely to understand why you are pushing for delivery of goods when that part of the conversation comes up – whether it’s today, tomorrow or days from now.
Q: How should companies deal with non-performance from suppliers as a result of COVID-19 impact?
A: Have a conversation with your suppliers about what they are experiencing. Every business has been up-ended during this crisis and each is learning how to respond and deliver appropriately.
Ask non-performing suppliers about their production plans, distribution efforts, and employee availability. Gain an understanding of their current landscape, offer advice on how your business can help, and collaborate with them on ideas that can support your needs and alleviate their issues.
If it’s clear certain suppliers will not be able to deliver, start contingency planning to back-fill your needs from them. But don’t stonewall them forever; keep in touch to assess their production as time goes by. Remember, there is a reason you chose them as your vendor in the first place, so give them some time to work through the mess that we are all living in.
Q: If this crisis lasts long term (1-2 years), what effect will it have on suppliers?
A: The biggest issue our global economies face if the coronavirus pandemic lasts long-term (1-2 years) is that vendors will go out of business, causing supply chains to drastically shrink and even evaporate.
In this doomsday scenario, businesses that survive will have to look for alternative means of sourcing necessary components and services to fulfill their business. Those alternatives could include tapping new suppliers or vertical integration, where your business begins to create the necessary components and services to deliver product to your customers.
At this point, we just don’t know what the future holds, which means we should start considering all options as realistic in the future, regardless of how outlandish they may be in today’s terms.
Q: What are the key questions you are asking suppliers to judge long-term viability?
A: Looking at the foundational core tenants of business can help you identify the strength of your suppliers. They should have continuity and disaster recovery plans in place to safeguard their future sustainability and a means to manage current cashflow.
Questions to ask your suppliers:
- What BC/DR plans do you have in place now?
This helps you understand how swiftly they are responding to disruption and how it will carry them through the next few months.
- Describe your working capital position throughout the life of our contract.
This provides insights into their financial viability during the time period you need their goods and services.
- Who are your top customers?
This gives you visibility into their primary sources of revenue, so you can then evaluate how those businesses are doing and how they might impact your supplier.
Q: As this is a unique situation that we are all experiencing, what level of concern should be given to suppliers that do not necessarily have business continuity plans that address pandemics?
A: It should be expected that many suppliers did not have business continuity plans prepared when COVID-19 hit. For many small businesses, continuity planning never makes it to the top of a priority list, so often they just never come to fruition. And while most businesses might have continuity plans in place, these plans were not prepared to handle the scale of this pandemic.
That said, if your suppliers have not composed continuity plans to manage the current situation, then you have cause for concern. Each business is continually evolving its activated continuity and disaster plans as the situation changes day-by-day, so there is no reason why suppliers cannot start new plans to mitigate their current situation.
If you or your suppliers need support managing continuity and disaster recovery plans, reach out to us. We offer frameworks for plans, reporting, and task assignments that can expedite your efforts.
Part 1 of this Q&A series includes questions from another webinar, Managing Suppliers During Disruption.
Check out this blog post for all of the answers: Managing Supplier Relationships & Risk During COVID-19.