A damaging dynamic can be found within the UKs supply chains. Some suppliers are being squeezed to the extent that they can only just survive. But survive they do, and while this situation exists and while supply-focused organisations arent going out of businesses en masse, it feels like necessary change isnt being ushered in with the urgency it should be.
The conditions suppliers operate in are a cause for concern. The headline offender is late payments 44 per cent of SMEs suffered last year according to government figures and the average business was owed over 30,000.
But other conditions include large businesses charging suppliers to keep business with them the FSB revealed earlier this year that around five per cent of small firms were forced to pay or face being delisted from customers supplier list.
The supply chain is working to within an inch of its existence. But is this a calculated stance taken by bigger businesses The answer appears to be a resounding “no”.
Strong desire for collaboration
To reveal more about the state of business / supplier relations and expectations, we commissioned research among financial, procurement and procure-to-pay professionals working in large businesses that deal with hundreds of thousands of supplier invoices each year.
The results revealed that most businesses actually show a strong desire for collaboration with suppliers, as well as an understanding that the performance of both business and supplier are inextricably linked, with both standing to gain by establishing a strong relationship.
Specifically, 92 per cent of those polled believe supplier collaboration is essential to driving value in the business and 85 per cent of respondents believe their organisations success is tied to that of their suppliers. In fact, 48 per cent identified “improving our competitiveness” as a way that suppliers can benefit a business.
Identifying the disconnect
So these numbers suggest big businesses support the success of partner organisations within supply chains. They dont want to see their partners suffer. There must be another disconnect. So we asked respondents how they could make significant strides towards strengthening their relationship with big business, for the long term.
Sixty-eight per cent believe inaccurate supplier information leads to delayed payments. Fifty six per cent claim faulty data increases the cost of processing. Over half of respondents said improving visibility into payments is the most important thing they can do to help suppliers. Fifty six per cent also see “making invoicing processes easier” as an area for improvement.
This points to incoherence in processes and a misunderstanding of how to fix the situation.
It shows that remedying this situation comes simply down to a conscious effort to align processes. This is only a tweak not an entire overhaul of the supply chain and a forensic examination into how businesses interact. Indeed, tech already exists to help businesses collaborate and transact, weaving together the fragmented payment processes that are pushing small businesses to the point of extinction.
Read more about how to fix the supply chain:
- Tesco to pay SME suppliers faster than larger firms
- Pay to play: Good procurement practice or unethical behaviour
- Five ways to avoid late payments from larger buyers
It sounds simple, but there are still barriers to adoption that can blight the process. And this comes down to all constituents of a supply chain working together for the greater good of the collective.
For example, the adopting of collaborative technology remains an issue, with some suppliers lagging in terms of embracing the forward-thinking technology available to them. Finding a solution that works for both is crucial to establishing an open and progressive supplier-business partnership.
So it seems that the necessary desire required to usher in a new era of supplier relationships is neither radical nor dramatic.
Big businesses want to support their supply chains because it’s mutually beneficial. Suppliers want to work better with the organisations buying their products in order to protect the solvency of their business.
This points to a fine tuning of the relationship which can be supported simply through tech and a conscious desire for change.
Charles Royon is VP EMEA at Tradeshift.