All established businesses will experience a supply disruption caused by a distressed supplier at one point in their lifespan. These events are commonplace throughout all sectors, but it’s the enterprise that can efficiently manage them that’s destined for long-term success. Therefore, it’s prudent for all businesses to adopt a strategy for distressed supplier management long before it’s needed. Failing to do this effectively will result in additional delivery delays and increased costs, which may result in reduced competitive ability, and even insolvency, under the right circumstances.
The details of an effective distressed supplier management strategy can be highly customized to the needs of the supplier and sector, but it should incorporate these five key high-level actions.
5 Actions for a Distressed Supplier Management Plan
1) Foster an Environment of Collaboration
When a supplier is distressed, or the supply chain is disrupted, developing a truly comprehensive action plan requires clear and concise communication between the supplier and the enterprise. To achieve this, it’s imperative that an environment of collaboration exists.
Too often the best solutions never come to fruition because the supplier and the enterprise are not working collaboratively to find them. In most cases each party practices protectionism and is never truly open to transparent dialog. To break down this barrier, you’ll want to do two things:
a. Actively engage in relationship building prior to any disruption event. This builds trust into the supplier-customer relationship, which affords the “benefit of the doubt” when it’s needed most.
b. Clearly communicate the expectations for desired outcomes and transparent information sharing when kicking off distressed supplier management efforts. This will set the tone and expectations of collaboration.
2) Get Past the Blame Game
When a supply disruption occurs due to a distressed supplier, it’s easy to focus on the events that led up to the disruption; it’s human nature to cast blame and attempt to distance yourself from liability. However, in the short-term, this wastes time and exacerbates the impacts of the disruption.
During a supply chain disruption, time is of the essence, so it’s critical to act quickly to develop a solution. Attempting to cast blame will result in finger-pointing and an extended disruption that could have serious impacts on your business and your customers. There will always be time for a post-mortem once the disruption has been resolved. The key is to avoid this initially and focus on resolving the disruption.
3) Develop a Plan to Win
When developing a plan to resolve a disruption or remediate a distressed supplier, it’s critical to be realistic and put each party in position to win. Too often there’s a hasty reaction to put in a plan that doesn’t account for process variation or requires perfect execution. This will only serve to delay remediation efforts and eat away at built-up trust. Developing action plans that are workable and allow for timelines to be reduced through good management will result in significantly better outcomes.
It goes without saying that the best plan in the world can end up being the worst if it isn’t properly executed. Actions must be carefully planned to ensure that the developed remediation plans are adhered to. It’s prudent to schedule repeating team touchpoints, and to develop detailed action items lists and timelines, to ensure all parties understand the plan status, expectations, and risks.
5) Monitor, Manage and Adjust
The plan at the beginning of the project is never the same as the plan of record. This is because no matter what your goal is, there are always unknowns that can’t be predicted. Furthermore, not adjusting the plan as better information becomes available will result in less optimal outcomes. During the execution phase of a remediation plan, understanding what’s working and what’s not is critical to the future success of the team. All teams need to be vigilant in reviewing the execution plan with the most current information, and be prepared to pivot quickly to maximize the impacts of their efforts.