Many of the most important priorities on the minds of Procurement teams and practitioners are not only dealing with crises within their own organizations, but also the crises being faced by their vendors. When working to resolve these issues, it is important to acknowledge that there is a balance to be struck between your own needs and that of the vendor – specifically in the case of critical vendors who may be integral to your own business processes.
Before taking the first steps in dealing with a vendor crisis, it is important to gain solid footing and assess the situation at hand. Step zero must always be to understand the business of each vendor inside and out – without understanding this, it will be difficult to react optimally to a crisis event. If your organization is a fashion retailer for example, then a supply disruption from your A4 paper vendor likely represents nothing more than a minor office inconvenience. However, if your organization manufactures enterprise mail sorters, this same supply disruption could represent a crisis with immediate ramifications.
While the above example may be obvious, the true impact of a vendor crisis can be more difficult to uncover. The most common business category in which to find extremely abnormal risk-taking is in IT, where software infrastructure can be difficult to immediately understand, without first doing a deep-dive analysis. Therefore, it’s always a best practice to understand which vendors are critical to the business in order to determine what risks are acceptable. At the very minimum, it is vital to assess vendor crisis events with the appropriate business stakeholders to assess criticality on a case-by-case basis.
Once basic vendor classification by business need has been determined, you can ration procurement resources to appropriately assist each vendor by determining what order they will be contacted in, how frequent communications will be, as well as the method of contact. It is likely to be impossible to give hundreds or thousands of vendors personalized attention, but it is both expected and necessary to provide a high level of support and communication to your tier-one, business-critical vendors.
Now that we have detailed which vendors need to prioritize, let’s briefly review three common crisis events faced by vendors during the COVID-19 pandemic:
3rd Party Vendor Crisis Events
As your organization seeks to assist a vendor, it is possible that the issue the vendor is facing may come from one of their partners, or even vendors. In this type of crisis, it’s important to communicate with your vendor’s internal teams – it may be that this situation will require your team to move outside their normal communication sphere and work directly with their vendor’s category specific experts. In some rare cases, this extension of communication may reach all the way to the 3rd party vendor.
Logistical Crisis Events
COVID-19 has had a profound effect on global supply chains; ships and trucks have been delayed, warehouses slowed, and international tariffs modified. They key word for this type of crisis event will be understanding. While procurement teams must work to mitigate supply and/or service disruption, we also need to manage relationships. Long term partners will remember how they were treated during crises. In the same vein, a procurement manager will remember the lengths to which a vendor was willing to go to maintain a stable relationship.
Financial Contraction Crisis Events
This type of crisis event requires creativity; in most cases a vendor who is facing financial restrictions will request to contract your payment terms. While this may be a tough sell, it is necessary to remember that any vendor contracting terms is likely also facing contraction of their own terms by their vendors (your 3rd party vendors) and term extensions from the other firms they supply. In essence, while an end manufacturer is only hit on one side, they may be hit on both. Creativity must be used to find a happy medium of payment flexibility that will allow the vendor the liquidity they need to fulfil their obligations and continue to partner with your organization in the long term. This payment flexibility can take many forms, most commonly, delayed payments, converting lump-sums into quarterly or monthly payments, or the provision of additional services (those the vendor can provide at no direct P&L cost to themselves).
In conclusion, though vendor crisis events are often viewed as adversarial situations, they can often present an opportunity for a procurement team to reorient themselves as a team and create lasting processes to ensure their vendor relationship management processes are optimized and agile. These processes can range from categorization of supplier priority, to the creation of menus of preset term modifications, to requests for counter-negotiation options. Generally, crises present a time in which it is necessary for procurement to meditate on the importance of mutual support within the strategic vendor management context. When vendors feel the pain of a crisis, it can represent a seismic shift in their understanding of what they are willing to do to support their clients, and in turn, propel them to newfound excellence as a supplier to your firm.
