Surviving a recession -- supplier relationships
The word recession harbours a multitude of negative connotations and signals testing times for industry professionals across the board, writes Kevan Coleman, chairman of the K2 Group, in the first of four articles on how to survive a recession.
Even for established businesses, a recession can unfortunately prove to be fatal. No matter what size a business is, or how successful, this is a time that requires belts to be tightened and costs to be cut. But are there any common denominators to watch out for or preparations we can make to ensure our companies survive?
Periods of economic expansion have traditionally been followed by bouts of recession. This well-established pattern of peaks and troughs is a reflection of the transient nature of the world economic climate.
The fluctuation of superpower economies such as the US and Japan are often a precursor to global recession, and for this reason should be closely watched.
The state of the UK market is also affected by developments in Europe, in addition to other variables such as unemployment, consumer confidence, advances in technology and changes in world affairs.
However, it is clear that these are essentially factors that are perpetually changing and out of our direct control.
Throughout this series, I will be detailing a number of practical measures that can be implemented by companies to improve the general success of their business, laying the foundations for a secure footing which becomes critical when the going gets tough.
Relationships with suppliers
The relationships that exist between companies and their suppliers represent an area that is often overlooked and undervalued. The recent introduction of procurement systems and departments has greatly helped to regulate contracts and alleviate improper practice, but this is essentially a step in the right direction rather than a total solution.
Procurement policies involve rights and obligations that are enforceable in law, and as such can occasionally lead to resentment, difficulties and ill feeling.
For this reason, it is vitally important to implement procurement policies in a fair and equitable manner. It is of equal importance to establish positive personal and professional relationships and clear communications with all of your suppliers.
It may seem obvious but possessing good suppliers is very important at all times. They are a key part of the team that enables your business to function. They should provide products of good quality at a competitive price, maintain a strict quality control program, deliver products on schedule and have the capacity to correct problems.
If your suppliers are sub-standard this could ultimately cost you your business. Most companies purchase on the basis of quality of products and services and advantageous pricing. Value for money is always a priority so when selecting a supplier invite tenders from a number of organisations to ensure you optimise and demonstrate value for money.
Another key factor is establishing a quality business plan in association with your suppliers. This should provide information on policies, strategic plans and challenges that will affect both parties.
This documented plan should clearly detail the tasks required and consolidate objectives and strategies into a master framework that can be consulted by your company and the supplier.
Sharing knowledge is intrinsic to building trust and facilitating their understanding of your demands. This business plan can additionally function to aid management control, planning and highlight opportunities for improvement.
It is also important to consider the profit requirements of suppliers -- remember that they are business people too and are operating to make a profit.
Enter into sensible negotiations, ensuring you secure your objectives but assist them where possible by understanding their own business requirements. Ideally, try to establish contract terms that provide incentives for both parties to achieve mutual benefits.
Furthermore, assist your suppliers by being efficient and courteous by making prompt payment, provide ample lead time for delivery and fundamentally treat them as you would like to be treated by your customers.
Another valuable strategy in the development of the relationship is to hold regular review meetings, evaluating operations while assessing whether their goods and services are meeting your specifications. When negotiating contracts, it is paramount to ensure that requirements are stated clearly in performance terms that can be objectively measured.
Moreover, in situations involving sub-contractors, implement a comprehensive audit system, which includes spot visits. The element of surprise guarantees a realistic picture of their daily operations and enables you to effectively monitor quality. Significantly, review meetings also provide an opportunity to establish an open exchange of information, sharing feedback and encouraging innovation and high standards.
When fostering relationships with your suppliers incorporating the right balance of personal skills and business necessity is pre-eminent. This is a working relationship based on mutual trust, honesty and objectivity; designed for the commercial benefit of both groups.
If you succeed in implementing good communications and high professional standards this will greatly assist the economic success and stability of your business. This is of prime importance to general business practice, but becomes increasingly consequential in times of economic hardship.
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