Till now we explored three imperatives to build an agile supply chain – Understanding the value proposition of your stakeholder, Understanding the ecosystem and Conduct scenario planning for impact assessment.
The fourth imperative is –BUILD RELATIONAL CONTRACTS.
Building relational contracts can help sourcing managers to plan for emergencies and uncertainties. A good relationship with the supplier ensures supplier support in times of adversity. Building relational contracts involves exploring options in the contracting process keeping in mind the emerging risks.
Let us understand this imperative with the help of a case study.
A major OEM player in the automotive industry was working on strict contracting terms with its supplier, who was supplier to other major OEM manufacturers. The buyer not being a customer of choice for the supplier was refused extended support by the supplier, when the buyer’s existing stock was destroyed by storm and they had to produce new products within shorter time frame.
A buyer stuck in such a scenario faces challenges like
- Supplier remains a vendor and not a growth partner.
- Over paying.
- Lack of support during bad times.
Technology helps resolve these issues by enabling
- Buyers to incorporate supplier views while writing a contract, thus giving them a sense of ownership. This coupled with a transparent process helps build a relationship of trust between the buyer & the supplier.
- A collaborative relationship with the suppliers while negotiating a contract.
- A thorough evaluation of supplier performance and enrolling them for supplier development programs, if required. These programs enhance supplier performance and thus benefit the buyer.
In the next blog we will discuss the last imperative in building an agile supply chain.