Buyers are increasingly dependent on critical suppliers

While company cost reduction will always remain a priority for procurement professionals, it seems that…...

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While company cost reduction will always remain a priority for procurement professionals, it seems that supply relationship management is undergoing something of a metamorphosis. A new risk analysis by Cranfield School of Management and commercial data analytics firm Dun & Bradstreet (D&B) indicates a shift from transactional relationships with suppliers to partnership relationships, as buyers become increasingly dependent on trusted suppliers in a context of greater risk exposure.

The study analysed commercial data held by D&B which included approximately 600,000 anonymised transactions between global suppliers and European businesses. Risk was computed on the basis of several factors, including:

  • The percentage of suppliers that companies categorised as critical or key to their enterprise
  • Suppliers that posed a financial risk
  • Suppliers based in high risk countries that posed an elevated foreign exchange risk

During the first quarter of 2018, almost half of supplier relationships (47.8%) were designated as either key or critical to the buyer, a rise of 1.4% from the beginning of the quarter. In turn, that level represented a rise of 6.7% on the figure recorded in the previous quarter.

The largest rise in dependency on key suppliers was registered by the retail sector, which saw critical relationships climb to 72.5%. Cranfield and D&B interpret this as a trend away from conventional transactional relationships toward partnership relationships with suppliers.

Moreover, the proportion of relationships with suppliers based in high risk countries was also on the rise, climbing from 20.6% in Q4 2017, to 22.8% in Q4 2018.

Dr Heather Skipworth, who lectures in logistics, procurement and supply chain management at Cranfield, observed that supply chains were growing longer, more complicated and increasingly fragmented, thereby elevating the level of risk exposure for businesses.

She added: “Alongside natural disasters and geopolitical events like Brexit, there are also other relatively low profile events like fluctuations in exchange rates, changes to rules and regulations, or the bankruptcy of a key supplier that can impact organisations’ supply chains.”

Nick Ford

Nick has over 30 years procurement experience in consulting, outsourcing and line roles within industry with international experience across many sectors and industries and led many procurement programs with blue chip organisations.

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