In a recent article by Executive Edge, Charlie Clevenger weighs in on the need for businesses' supply chains to remain flexible and proactive.
How much is having a secure supply chain worth to your leadership team?
After a series of shocks this decade, over 500 large-company CEOs recently gave consulting firm Proxima a clear answer: “Quite a bit.”
More than 70% of the executives polled by Proxima said they’d be willing to pay an extra 10% or more to suppliers if it means greater resilience and certainty. The average premium they’re prepared to pay was more than 17%, and one in three said they’d be willing to pony up an additional 20% or more.
GM, which is on pace to produce pre-tax profits of more than $14 billion this year, can comfortably afford to add “a bit of cost” in the name of resilience. The auto giant’s just-in-case tactic has been applied successfully before with some commodity categories, said UHY Principal Charles Clevenger, but such financing dynamics are more difficult for smaller firms to emulate.
Blocking, tackling and building relationships
So where can leaders of businesses not generating $14 billion of annual profits invest their time, energy and scarcer resources so that they can worry a little less about their supply chains? Clevenger said it’s a matter of being flexible whenever possible and proactive at all times.
In many ways, it’s also about being a good person to do business with.
Relationships matter more than ever given the upheavals and surprises business leaders have needed to grapple with this decade. The traditional power dynamic where large buyers forced price and volume requirements onto suppliers doesn’t work as well these days. (Although Honda appears to be giving that approach another try with a four-year, $9 billion mandate as it tries to ward off fast-emerging Chinese rivals.) And for many supply chains, it’s a fine line between being aligned with each other and falling into a winner-loser dynamic.
“Purchasers want the best arrangement but they also have to be careful about taking the balance out of the relationship,” Clevenger said.
