Recent disruption has shown us that the key to business continuity is resilience. Nature discovered a solution to resilience 3.5 billion years ago: ecosystems.
A biological ecosystem is a complex web of mutually beneficial relationships between diverse elements. To evolve and respond to change requires participants in the ecosystem to work together. In business terms, this means being collaborative rather than adversarial, and working to benefit wider stakeholders rather than just shareholders.
If one participant in the ecosystem is weakened, the entire system suffers. During the pandemic, supply chains faltered as patterns of demand and supply shifted. Buyers either stopped buying or suppliers were unable to sell products and services. This impacted not just profit margins and share prices, but also vulnerable workers, who rely on work for food. To keep the value chain moving, participants need to support each other.
Here are four actions Chief Procurement Officers can take today to boost collaboration with their third parties and increase resilience:
1. Map the value chain:
Artificial Intelligence (AI) platforms offer cutting-edge visibility across the entire value chain. Working in real-time and communicating at pace with key suppliers and customers creates agility to respond to disruption. This may include shifting freight routes or switching to alternative suppliers. To be even more effective, consider simplifying the value chain. True transparency comes from having stronger relationships with fewer suppliers. The value of a real time digital panorama, however, is limited without amenable, trustworthy and compliant third parties.
2. Upkeep your upstream:
If a lack of visibility over the value chain leaves businesses unable to counter operational constraints, it begs the question what happens to vulnerable workforces in unregulated markets, exposed to bribery and forced labour. Restrictions on the movement of people during COVID-19 meant workforce demand was unable to match supply. This exposed essential workforces to dangerous and life-threatening situations.
- Too many people, too little work: In low/middle income countries, people live hand to mouth without economic safety nets, such as furloughs. If they don’t work, they don’t eat. Furthermore, when supply chains stops, the flow of humanitarian aid also stops. COVID-19 is expected to lead to another 130 million cases of acute hunger.
- Too few people, too much work: Desperate to meet demand, factories resorted to illegitimate and unsafe measures, such as ignoring social distancing and recruiting additional staff through illegal routes. Additionally, the mental health consequences of excessive overtime are now a reality many businesses must face.
When disruption surfaces, it is vital to agree realistic lead times, share honest demand forecasts and avoid cancelling contracts with vulnerable suppliers. During business is usual, invest in key suppliers. Buyers who look after their suppliers are rewarded with higher quality, and more reliable and cost-effective materials. For example, buyers could partner with vets to support free range chicken farmers. Healthier hens mean fewer hens required to fulfil demand, both lowering costs and increasing quality. Buyers operating traditional ultra-lean, cost-optimising agreements are left high and dry as suppliers either liquidate or deprioritise buyers if stock is limited.
3. Determine your downstream:
Understanding what the post COVID-19 consumer values is critical. Consumers expect more than just a product – they are looking for seamless, ethical, transparent and rapid service. The capricious consumer has unparalleled purchase options, and so pace, quality and personalisation are essential to maintain market share. This is almost impossible to achieve working alone. To be competitive, the entire value chain to be working together in pursuit of a shared objective – consumer value.
4. Become a signatory to a coalition or action movement:
If a few dominant market players take meaningful action, this can drive a step change in the resilience of an industry. Chief Procurement Officers have the levers to procure only from suppliers who meet or are proactively striving for certain standards. If Chief Procurement Officers in over half the market share of an industry take the same action, this wave quickly multiples across the supplier network, forcing radical change.
It is unrealistic to talk about a global network having shared values. National political, economic and social forces create diverse and often contradictory behaviours across a global value chain. Mutual interests, however, are achievable. A mutual interest in business resilience, human welfare, and environmental protection spans borders.
The “S” of ESG i.e. Social, has taken prominence over the last few months. Businesses have collaborated at scale and pace to achieve widespread social impact, promoting people, health and wellbeing, alongside operational logistics. In essence, we’ve taken the first step towards simulating a resilient biological ecosystem. To keep relevant and resilient, businesses must continue to focus on the mutual interests that nurture this wider ecosystem, achieved by digitally-enabled visibility, educating and supporting vulnerable third parties, and taking bold steps to empower consumers to make informed buying decisions.