By Meghan Belnap
History is full of battles that were lost because they were fought on principles that were obsolete compared to those of the opposition. This is the current state of business, as well. Unfortunately, this is especially true of supply chain management, where executives are often interested in optimizing material flow, but without emphasis on eliminating risk. Evaluating logistics in terms of risk assessment is relatively new, but it beings with having quality supply chains in place. Here are some ways to ensure you have the most reliable vendors.
1. Supply chain segmentation
To realize the benefits of risk management in logistics, companies must do some analysis of their needs. Reconfiguring supply chains may be necessary as consumer and industry changes always present risks to planning. Most leading companies classify their vendors in terms of different categories that affect their business. Companies with complex products will compartmentalize supply chains into discrete networks where each provides options for a specific need, such as the quality of a particular circuit board or lead time on a precision valve. While they can be organized in different ways, dividing supply chains into segments makes realignment with business interests more flexible.
2. Vendor screening
Checking vendor references and certificates is a must. The services that a vendor provides to your business should meet – and ideally exceed – your compliance requirements. A final product that is not consistent with regulations and insurance requirements puts you at risk. Vendor credentialing services can take on the task of screening vendors to ensure they have the right qualifications and certificates, and provide the lowest risk. When you have confidence in a vendor’s ability to meet your insurance requirements, you can save time and use it to advantage in growing your client base.
3. Contract negotiation
You can have a lot of influence on vendor performance by creating agreements that mitigate your risks. You and your vendor should determine and agree on service level agreements, and how satisfaction of that service will be measured. All of this should be written into the contract so there’s no room for interpretation later on. Clear communication from the start is essential to a healthy business relationship.
You should also have some say over who the vendor entrusts to manage your account. Some vendors may make a client they see as easy-to-please a lower priority and delegate your business to a less experienced account manager. You should also consider writing exit guidelines into the contract in case you decide to end the business relationship.
4. Understand what you’re getting
Vendors should be seen in terms of the potential risks as well as in costs, delivery, and quality. Clearly define and evaluate a specific need before you start looking for a third-party solution. Often company logistics managers will overlook certain requirements if they can get a good price, or exact special favors. Even if the vendor contact is sincere, there’s no guarantee that they’ll be in that position for the long-term, or that their own executives won’t suddenly overturn their promises.
Never make the mistake of letting the vendor tell you what you can expect. It’s your needs and your cash flow that drives the process. They should be willing to put promises in writing, and offer a trial period before you make the final decision.
The majority of companies regard supplier relationships as essentially the same. But different suppliers will all involve different levels of risk in their ability to meet all of your expectations. Reliable vendors are essential to business continuity; you can better prevent supply chain disruption by creating a more flexible logistics network of proven vendors.
Meghan Belnap is a freelance writer who enjoys spending time with her family. She loves being in the outdoors and exploring new opportunities whenever they arise. Meghan finds happiness in researching new topics that help to expand her horizons. You can often find her buried in a good book or out looking for an adventure. You can connect with her on Facebook right here and Twitter right here.