4 steps to rebuilding customer-supplier relationships
Many customer-supplier relationships were weakened or damaged during the economic downturn. To rescue them, both sides need to acknowledge past mistakes, identify the causes of those problems, take corrective action, and monitor the results.
As of this writing, all signs are pointing toward recovery, and economic indicators (take your pick) are suggesting a better ending to 2010 than we experienced in 2009. Optimistic whispers in the first few months of this year became clearly audible announcements when Quarter 1 earnings were released. Demand is on the rise, slashed capacity is beginning to fill up, and at many companies, earnings will exceed expectations.
Despite the fact that business is improving in most industries, companies will continue to struggle for some time to overcome the effects of the recession on their supply chains. This is especially true for those that made drastic decisions and acted in ways that altered their supply chain capacity and supplier services.
Customer-supplier relationships have been caught up in this turmoil and have often suffered as a result. The economic upheaval of the past 18 months has left many relationships weakened, damaged, or even severed. With demand increasing, now is the time for buyers and suppliers to assess the current state of their relationships and then address or resolve any concerns. This can be accomplished through a four-step process that includes acknowledging what has happened, identifying the causes of any problems, agreeing on and implementing corrective actions, and following up and maintaining the improved relationship.
These steps should be carried out within your company's supplier relationship management (SRM) program. SRM is a formalized process through which companies build strong, collaborative relationships with their vital suppliers to make improvements and achieve their mutual supply chain goals. If you do not already have a formal SRM program, then following these steps can serve as the foundation for this type of initiative. Customers and suppliers that adopt this process and commit to continuing it in the future will not only reaffirm and strengthen their partnerships but will also ensure that they create an effective, flexible supply chain.
Step 1: Acknowledge past mistakes
Start out by evaluating your current relationship with your most critical suppliers. This assumes that you have already segmented your supply base and identified your most important suppliers. You can follow this process for all suppliers, of course, but to maximize the value of your efforts, it's a good idea to address the most essential suppliers first. Once the top suppliers have been singled out, you can assess the current state of your relationship with each of them individually.
The most important part of this first step is to identify and acknowledge the mistakes that were made on both sides. Ask the following questions and examine your answers carefully: Is this relationship in turmoil? If so, what were the actions that created this tension, and why were those actions taken? What were the outcomes of those actions, and what position are you or your suppliers in now as a result? How does the supplier feel toward you, and how do you feel toward the supplier? Do you deem the relationship to be weakened, damaged, or severed? Is the relationship meaningful for your company, and will improving that relationship bring value to both parties? By answering these questions, you will define the roadmap toward reconciliation and improved effectiveness—or to accepting a separation, if that proves necessary.
Once you have determined that the relationship is worth repairing or saving, it is time to pursue open and honest communication with that supplier. Integrity and trust are the basis for any relationship, and addressing difficult topics in a frank and objective manner will be appreciated by everyone involved.
Coming to the table in an open manner is just the beginning, however. The magnitude of the strife in the relationship will dictate the level of effort required to address it. Weakened relationships, while still requiring direct and concerted effort, can be more easily repaired than those with damaged elements or those that have been severed. A special note on severed relationships: If you are not sincere about reconciliation, then do not waste your time or your supplier's time. The amount of time and patience required to rebuild a previously severed relationship can be substantial, and if either party lacks commitment, true reconciliation becomes doubtful.
Step 2: Find the real source of the problem
The most delicate part of this process involves identifying the root cause of the problems. Bringing in a neutral third party to help both sides review the current relationship and past experiences is one way to maintain objectivity during these discussions. In this type of conversation, emotions and personal involvement tend to rise to the surface, and the "effect" part of "cause and effect" often becomes the focal point. This is a situation you should strive to avoid. If participants fail to consider the root of a problem, only the symptom will be treated, and another one that may be even more harmful to the relationship will inevitably appear.
In reviewing the events of the last 18 months, many customers and suppliers may point to the economy and decreased demand as the cause of relationship strife and discontent. There's no denying that the economy was an underlying factor. As orders plummeted, original equipment manufacturers (OEMs) reduced capacities to attempt to match output and expenses to very weak demand. Many suppliers were unaware of the dramatic steps taken by OEMs and were left with buildup in their inventories of up to 50 percent—with no buyers for that stock in sight. These high inventory levels caused a variety of problems for suppliers and, in the worst cases, resulted in bankruptcy.
While the economy and declining demand clearly play a role here, poor customer-supplier relationships and the lack of strong communication channels appear to be a major cause of the devastating inventory buildup. This might have been avoided by improving forecasting tools or enhancing operational capabilities to more quickly respond to downward shifts in demand. Both are sound actions to pursue at any time, but neither will resolve the lack of customer- supplier communication that will continue to cause problems in the future.
An important question to ask here is: "Were there warning signs before the problem occurred?" As both customer and supplier consider this question, they should reflect upon quantitative (on-time delivery, payment cycles, fill rate) and qualitative (quality, customer service, safety) measurements that may have signaled trouble ahead. Discussing these measurements or signals as well as the customer's and supplier's responses to those developments will help to establish where specific problems originated.
Step 3: Identify and implement corrective actions
Now that the root causes of relationship strife and their leading indicators have been identified, the next step is to define and implement corrective actions. These actions can include procedural changes, changes in safety stocks, increased communication requirements, or even changes in personnel. Observe the impact of these corrective actions on the original symptoms (the "effect") and ensure that the resulting improvements can be objectively measured and quantified. For example, a procedural change could reduce the amount of time required to process a transaction, therefore the number of transactions per hour will increase. Moreover, increasing safety stock and boosting communication requirements (such as sending status updates more frequently) may yield higher service levels, which can also be measured.
It's wise to avoid subjective measurements, which may invite interpretations that lead to more disagreements and conflicts. Be sure to incorporate these measurements into an existing customer-supplier scorecard process, or if none exists, take the opportunity to create one that can be reviewed periodically. The solutions you develop can and should vary based on the type of relationship you have with your supplier:
A strictly transaction-based relationship that focuses on only one or two activities is likely to be rekindled by focusing attention solely on improving those specific activities.
Tactical relationships may benefit from solutions that span both upstream and downstream from the basic operational transactions. These relationships may have multiple touch points, and resolving each relationship conflict at each touch point may be an extensive, time-consuming process.
Strategic partnerships call for the most complex activities and coordination to revive a distressed relationship. Moreover, strategic partnerships frequently span multiple organizations at all levels. So, although most efforts may start at the top of the organizational chart, it is important to address all levels when rebuilding trust and good will.
Carrying out the solutions you agree on most likely will involve increased sharing of operational and business information, such as supply inventory levels, point-of-sales data, and market trends that are beneficial for both customer and supplier. Frequently, an investment in information technology software can facilitate and enhance this kind of extensive data sharing.
Step 4: Monitor and maintain the relationship
After implementing corrective actions, you'll need to conduct management reviews in which progress is discussed, milestones are recognized, and changes to planned milestones are decided upon when necessary. It almost goes without saying that these reviews should be carried out in a timely fashion. The definition of "timeliness," however, depends upon what activities are being measured and on their inherent cycle times. The review should occur within a time frame that allows sufficient data points identifying change to be generated. A premature review will show lack of progress and can lower confidence levels. At the same time, a late review or prolonged periods between reviews can jeopardize momentum or even introduce confusion if environmental components have changed and/or new variables have been introduced since the previous review. Matching management reviews to meaningful data generation will help avoid these pitfalls and keep the momentum toward positive relationship change.
The successful repair of a customer-supplier relationship will heavily depend on the involvement of the leadership teams and the commitment of both sides to the process. If continuing the relationship will bring value to both parties, then their commitment to achieving success (and to maintaining the relationship) should be explicit. In other words, leadership's involvement in supplier relationship management demonstrates the importance of this activity to the organization.
Nevertheless, sustaining the relationship can be difficult even when there is great support from the leadership of both customer and supplier. It makes sense, therefore, to consider turning the relationship management activities that have been developed to address specific problems into a formalized program supporting continued improvement. Leverage the scheduled reviews, progress metrics, and milestones to shape the content of a formal customer- supplier management process. Expand team and individual involvement to other levels of the organization as appropriate.
Remember that a customer-supplier relationship is a two-way street— throughout the "monitor and maintain" phase, both sides should be openminded and go out of their way to learn from each other. For example, the customer can teach the supplier that it needs to provide more than just the right product at the right price, and the supplier can teach the customer that it requires more information than a basic forecast if it is to support the customer's supply chain success.
Relationships: The foundation of success
Now is the time to assess your customer-supplier relationships, as your company recovers from the Great Recession and prepares for an upturn in business. If those relationships are weakened, damaged, or severed, consider taking the following steps: Objectively acknowledge the past and open a clear communication channel with the sincere intent of building a mutually beneficial relationship. Discuss and discover the sources (the "cause") of the problems and develop corrective actions. Be careful not to fall into the trap of addressing symptoms (the "effects"). Follow through with corrective actions and continue to monitor and maintain the relationship. To improve the likelihood of success, ensure that there is leadership support from both customer and supplier.
Remember, solid, healthy customer-supplier relationships form the foundation of an enterprise's success. Companies that continue to suffer because of weakened, damaged, or severed relationships will surely lose to their competition.
Residents and businesses along the Florida panhandle today are keeping a close eye on Tropical Storm Helene, which is forecasted to strengthen into a major hurricane by the time it strikes the northeast Gulf Coast on Thursday.
Hurricane and storm surge watches are already in effect for that area, which could see heavy rain and flash flooding across portions of Florida, the Southeast U.S., Southern Appalachians, and the Tennessee Valley, according to predictions from the National Hurricane Center.
The storm would come a month after Hurricane Debby delivered drenching rainfall for days over Florida in August and after Hurricane Beryl hit Houston in July, knocking out power across the region.
As Helene continues to gather strength from the warm waters of the Gulf of Mexico, experts are warning that the storm’s impacts could include the Port of New Orleans, agricultural operations throughout the Southeast, and additional citrus and fruit farming business in Florida, according to a report from Everstream Analytics’ chief meteorologist Jon Davis.
From a supply chain perspective, additional disruptions could include rail and road transportation stoppages, closures of interstate highways I-10 and I-75, widespread power outages, and shutdowns of offshore energy operations in the eastern portion of the Gulf of Mexico, Davis said.
As the third potential hurricane to hit the area within as many months, the arrival of Helene shows that extreme weather events aren’t just anomalies, but rather they’re the new normal for shipping companies and port authorities, according to Frank Kenney, Director of Industry Strategy at the technology consulting firm Cleo.
To cope with that constant battering, businesses need to adopt a new mindset, he said. “The only way to keep supply chains running smoothly is to build resilience into every aspect of operations. This starts with diversifying logistics strategies. If a shipper is dependent on a single route or port, they’re setting themself up for trouble. Instead, it’s crucial to have multiple backup routes and options ready to deploy when the unexpected happens,” Kenney said.
Following that strategy, inland ports such as Savannah and Macon, Georgia, will likely gain importance in coming years since their locations offer proximity to ocean ports while also providing access to major highways and some protection from coastal flooding. “In short, the storm isn’t going away, but by embracing diversification, leveraging technology, and ensuring supply chain visibility, U.S. ports and shipping companies can stay ahead of the curve. The companies that prepare for these challenges now will be the ones that continue to thrive, no matter how extreme weather events rock the boat," Kenney said.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”