Viewpoint: 6 steps to creating transparency with suppliers

Transparency is critical to ensuring a well-functioning supply chain, but many companies don't require their suppliers to disclose important supply chain information, according to Farida Ali, president and CEO of Dynamic Technology Solutions, a firm that provides supply chain and technology solutions to companies in highly regulated industries.

The lack of transparency often leads to companies reacting to negative events, such as the COVID-19 pandemic, rather than planning for them, Ms. Ali said. The supply chain problems the pandemic has highlighted reflect a "longstanding and fundamental shortcoming" in companies' relationships with their suppliers, she wrote Sept. 24 in Harvard Business Review

Six steps companies can take to create transparency with their suppliers, according to Ms. Ali: 

  1. Set a constructive tone. Suppliers need to know that risk management is a priority. The shared goal between a company and its supplier should be to create a clear pathway for the supplier to communicate supply chain risks that the company can address in advance, not placing blame after a negative event, Ms. Ali wrote.

  2. Begin at the design phase. Companies should consult with their suppliers at the product design and specification phases so supply chain resilience can be established from the start. Suppliers should be required to complete a detailed checklist of risk factors with every quote they submit, according to Ms. Ali. 

  3. Anticipate suppliers to push back. Some suppliers may push back because of the additional administrative burden or concern for potential legal liabilities for failure to inform companies of supply chain risks. But this can be mitigated during negotiations by companies demonstrating a willingness to establish deep, long-term relationships with their suppliers, Ms. Ali said.

  4. Apply leverage if necessary. Companies should be prepared to award business to a supplier based on its cooperation in providing the necessary information. A supplier's ability to consistently deliver accurate supply chain risk data should be weighted as heavily as on-time delivery and cost control, Ms. Ali said.

  5. Ensure that information is applied in a timely manner. Risk factors for specific components, end-of-life notifications and details on potential supply chain disruptions need to reach a company's product and engineering teams in a timely manner, Ms. Ali wrote. She gave an anecdote about an unnamed large medical device company that discovered that a low-cost power adapter used in one of its most profitable devices was made by a single company in China and couldn't be replaced with other adapters. The company then reengineered the device to accommodate a broader range of power adapters.

  6. Establish a system for evaluating and mitigating risks. A company cannot rely solely on supplier transparency to mitigate risk, Ms. Ali wrote. Unexpected disruptions, such as when a giant cargo ship got stuck in the Suez Canal, can't be forecasted. It's crucial to establish a date-driven internal process for evaluating supply chain risks and risk mitigation protocol that's monitored closely. 

"As the global supply chain grows more interconnected and complex, the impact of climate change expands and geopolitical tensions and trade restrictions increase, the likelihood of disruptions is bound to increase. Companies must plan accordingly," Ms. Ali concluded. 

Read the full Harvard Business Review article here

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