New transparent relationships
These examples apply to supply chain analytics within the organization, plus top-tier suppliers. But the next horizon is end-to-end supply chain visibility, integrating multi-tier suppliers’ systems and data.
To deliver the full potential of transparency, resiliency and sustainability, cross-tier supplier collaboration should be the long-term goal. And this needs supplier relationships to change fundamentally.
To put it simply, supplier relationships are generally negotiated on low cost and immediacy of supply. But to enable the three top supply chain priorities, suppliers must be segmented based on their impact on the company’s business and then have the right relationship management to match, whether strategic or transactional. Broadly, suppliers must become members of an organization’s ecosystem — levelling the playing field through mutual benefit and trust.
One way to achieve this is through the Vested® approach articulated by Dr. Oliver Williamson and Kate Vitasek, and Dr. Alex Miller of the University of Tennessee. Multiple organizations have put this into practice, starting with a major fast-food chain that has built relationships on a “what’s-in-it-for-we” basis for over 50 years. Some principles of the Vested approach include a focus on outcomes not transactions, transparent and sustainable pricing, and agreements and promises rather than heavily caveated contracts. Although on the face of it these principles might sound easy to achieve, they require companies to reinvent and reimagine their supply chain operating models and accompanying services (legal, risk, etc.) to truly allow innovative and collaborative partnerships to foster.
Whether or not Vested is the right route for redefining relationships, there are, of course, challenges to making ecosystem-based partnerships work:
- Trust: Opening up systems and data can be very exposing. All parties have to feel they have their houses in order before letting someone else in. And it’s essential for everyone to feel confident that their critical data is in safe hands, both from a commercial and cybersecurity standpoint.
- Criticality: There should still be guarantees around the most critical or highest priority aspects of supply.
- Agreements: Transparency should be introduced into contracts or agreements over the long term, and eventually made mandatory if the relationship is to continue.
This enhanced form of relationship management ushers in a new era for supply chain, moving from cost and delivery to sustainability and traceability. And it has benefits for everyone involved — increasing stickiness, driving resiliency and freeing up time to add value.
Delivering on all three priorities
Organizations now need to try and deliver sustainability, transparency and resiliency simultaneously. The good news is, they’re interdependent.
Resiliency in the supply chain can be defined as the ability to respond on time, effectively, based on timely information, and having the agility to respond and change course. All this comes from data and intelligence, which are the source of supply chain transparency.
In the past year, some areas of supply chain sustainability, such as human rights protection, worker welfare and safety; and energy savings and renewable energy have increased significantly. Knowing how to identify and measure such levers, and change them, is an indicator that all three priorities are being addressed.
The questions for supply chain leaders, and all of their partners and suppliers, is now: can you see through the whole of the supply throughout your tiers, and can you adapt when the inevitable disruption starts to shake your supply chain? Answering “yes” to these questions can yield immediate value — and before investors and regulators start asking them.
Dave Lubowe, Managing Director, Supply chain, Ernst & Young LLP, also contributed to this article.