Leading firms are 'forging relationships with key suppliers'

26 February 2021

Companies are responding to the disruption of the last year by building strategic supply chain resilience through the forging of strong long-term relationships with key suppliers, according to a report.

The report, by the Association for Supply Chain Management and the Economist Intelligence Unit, looked at supply chain resiliency in 308 publicly-listed retail, pharmaceutical and consumer electronics companies.

The report said firms were “building strategic supply chain resilience by forging strong long-term relationships with key suppliers and customers”.

More than half (54.9%) of companies said they had directly helped suppliers remain solvent during times of crisis.

“High performers work together with their supply chain partners by sharing best practices, joint long-term planning and providing financial assistance to preserve supply chain networks,” said the report.

The semiconductor industry was cited as an example of a sector that had pulled ahead of the rest.

Intel had transformed its organisational learning practices to focus on supplier cooperation after the 2011 tsunami in Japan affected its supply chains, the report said.

This meant it was more prepared for the shock of coronavirus-related disruptions and was able to achieve “zero supply chain-related customer impacts from the 2011 Japan tsunami”.

“When Covid-19 struck, they were able to draw from past lessons, together with well-trained personnel,” said the report.

Since the survey was carried out Intel’s supply chain has hit trouble and the company is considering whether to outsource some manufacturing after difficulties getting its next-generation chip production up and running.

Eight in 10 (80%) consumer electronics companies sized greater than $1bn said they had directly helped suppliers to remain solvent during times of crisis, compared with the overall average of 54.9%.

Mike Douma, vice president supply chain at AbbVie, said in the report that partnerships should include sharing best practice, joint long-term planning, and ensuring partners’ systems were robust enough to support new product developments.

Providing sustainable levels of financial assistance to suppliers during a shock is a good example of relationship-based resilience as “maintaining the financial health of the supply chain can position companies to bounce back when economic conditions improve”.

Two-fifths (39%) of consumer electronics firms surveyed as part of the report said supplier bankruptcy was a risk that could cause severe supply chain disruptions over the next 12 months.

This was higher than the corresponding figures for retail (26.7%) and pharmaceuticals (29.9%).

The study cited a report that considered the fortunes of 4,700 public companies in the wake of the 2008 financial crisis and found firms that focused on cost-cutting or cost control had the lowest probability of pulling ahead.

The report also found only 42% of benchmarked companies had set targets to reduce supply chain-related carbon emissions.

It said this figure was doubly concerning because the regulatory environment increasingly penalises companies for emissions and environmental damage, and target-setting was the easier part of the process.

“Establishing baselines and monitoring performance on environmental targets in the supply chain is far harder,” said the report.

It noted that only 16 out of 308 companies surveyed provided scope three emissions data.

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