How to Build a Transparent Relationship with Your Suppliers

hbr.org
6 min read
difficult
It's the key to minimizing and mitigating supply-chain risks.
To minimize and mitigate supply chain risks, companies need to engage their suppliers as partners. This means creating transparent relationships in which suppliers can share negative information without fear of being punished. The underlying dynamics of the need to shift to proactive "pushing" of critical information by suppliers to manufacturers and away from the reactive "pulling" of information from suppliers by manufacturers. Companies must expect all suppliers to have skin in the game and require them to identify and keep them informed of potential risks.

Companies of all types have been affected by pandemic-related supply chain disruptions, but many of the operational challenges they've faced over the past 18 months were magnified by the pandemic, not caused by it. Those problems reflect a longstanding and fundamental shortcoming in how companies' relationships with their product and component suppliers are structured. Even in the absence of black swan events, manufacturers will continue to be at risk until they establish new ways to work with suppliers that ensure full transparency regarding the sources, availability, and life cycles of their mission-critical products and components.

Most companies understand how supply chain transparency can affect their ability to manufacture and deliver products. Very few, however, apply a disciplined process that requires suppliers to make important product and supply chain information available to them. Instead, they either passively wait for critical information to be provided or attempt to gather and manage those insights on their own, lacking the depth or details that only suppliers can provide. As a result, companies often react to negative events rather than plan for them. They place too much emphasis on the cost of essential products or components and pay too little attention to their inherent supply chain risks.

My firm's experience suggests that companies rarely share risk-related concerns with their…
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