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Updated by Charles Bystock on 05/17/2021
blak swan

A black swan event is a rare and unexpected business crisis. But black swans are not that elusive, especially if you live in Australia. There’s a lesson for the business world in this idea: Black swans are more common than you might realize. From a supply chain perspective, planning for the next black swan event is crucial because we now know that risk is closer than we ever imagined. How should procurement teams prepare for the next black swan event? How can we establish best practices for vendor management now, so that we’re ready for the future?

What did we learn about vendor management during COVID?

The first lesson we learned is that vendor management teams are far more important than we realized. Supply-chain professionals manage critical, high-risk vendors during normal business operations, and their roles are heightened during times of crisis. Organizations also learned that vendor management is nuanced in unexpected ways:

  • We overestimated supply chain redundancy. Every chain can break at its weakest point. So, companies that consistently and proactively managed vendor relationships fared better during the pandemic than those that did not.
  • Vendor management increased in difficulty in direct correlation to the need to diversify supply chains. Contract management and risk assessment became much more challenging in 2020.
  • Contract management exploded during the crisis. The escalation of volatile markets and supply chain disruptions pushed contracts to their limit.

These are just three of the vendor management lessons we learned. We must also consider how we can proactively manage these relationships before the next crisis.

vendor relationships

Top ways to manage vendor relationships during a crisis

Managing vendor relationships during a crisis is an entirely different set of workflows. Some of the best ways to ease disruption during challenging times include:

  • Over-communicate with suppliers and emphasize keeping lines open to minimize any issues. Designate a consistent contact both at the supplier and on your vendor management team.
  • Go to real-time inventory. If you haven’t made use of cloud technologies to manage supplies in real-time, don’t delay this transition. Keeping a closer eye on inventory numbers is essential — particularly during a crisis.
  • Consider cross docking, a practice where vendors have incoming orders loaded onto outgoing trucks without the middle step of warehousing. Talk with vendors about speeding up the supply chain by leveraging this technique.
  • Consider multi award vendor strategies to avoid the “all eggs in one basket” approach. Consider a mix of local, regional, national, and global vendors to mitigate risk of supply chain disruption.

Now that we’ve learned some hard lessons about weaknesses in vendor management strategies, how do we apply this knowledge to develop a more effective vendor management strategy?

vendor management plan

A five-step plan for vendor management

To apply what we’ve learned about more effective vendor management, follow this five-step strategy:

  1. Identify vendors and create a sourcing strategy that includes an understanding of your bargaining position and the risks associated with a given vendor.
  2. Learn the vendor’s crisis plan and generate a vendor portfolio that includes capabilities and value-adds the supplier may offer during a crisis.
  3. Evaluate possible responses to their crisis plans and draft an implementation path with several “what-if” alternatives.
  4. Revamp supply-chain disaster plans to integrate with those of suppliers. The goal is a true, mutually beneficial, partnership with a reliable vendor.
  5. Communicate plans and revisit them regularly in an active management process that monitors market shifts and changes in supplier performance.

Successful vendor management is a continuous, multifaceted process. Organizations that fail to learn from the global pandemic will likely fail to respond appropriately to the next black swan event. Windsor Group Sourcing Advisory is in your corner. We help organizations like yours manage risk in a changing world. Contact us to find out more.