Supply Chain Management – An Alternative to Supplier Blackmail

We are currently witnessing a very uncertain time in which various risks, from economic to political, are increasingly emerging. In a crisis, which transitions from a state of recession to the final stage – depression, it is often difficult to maintain competitiveness, liquidity, and the presence of mind to make the best use of the resources entrusted to us as entrepreneurs.

There always remains the possibility of criticizing liberal capitalism and the political elite, as well as nostalgia for autarky. Unfortunately, all of this does not yield results, at least not in the short term. The open question remains as to what else can be done to survive in unfavorable conditions without diminishing the value of assets.

Focusing on All Costs If all internal reserves have been exhausted, the only remaining option is to reduce input prices, thereby lowering the input costs of goods and services necessary for regular economic activity. This is the hardest to achieve because it encroaches on the supplier’s business policy and indirectly on their business results. To avoid this, circumstances must be created for so-called win-win situations by demonstrating the mutual benefits that can be derived from the interaction between supplier and buyer.

A mutual focus on costs across the entire supply chain – from producer to end consumer – is slowly coming to the forefront. In the previous period, especially during times of economic boom, sellers primarily focused on volume, while buyers focused on reducing input prices. In the meantime, things have changed considerably. Those who only looked at volume and procurement prices have long been dead or are nearing their end. In earlier times, procurement often invented ways to lower input prices without proper arguments. An interesting article by Manuela Tašler from Lider exactly seven years ago listed 30 common conditions that suppliers, mostly from foreign retail chains, imposed on domestic suppliers without considering deeper costs and the fact that the goals of their work must be competitiveness and stability, which, of course, also includes the supplier’s ability to survive longer. If these elements are not monitored in procurement, operational costs associated with a decline in the quality of the supplier’s work or the need to replace the existing one increase, which is usually a cost-intensive activity.

Concern for the Customer’s Business Suppliers are poorly aware of the importance of total costs in the supply chain. Very few think about maximizing the buyer’s competitiveness and the buyer’s profit per unit of sold products. The business world rests on interest, and it is important to increase the buyer’s profit (and welfare), so a joint approach to increasing profit must be imposed as a supplier who cares about the buyer’s business results and with whom it is easiest to work.
The doctrine of supply chain management offers answers to the question of maximizing profit from producers to end consumers, starting with intensive cost testing for the long-term maximization of profits for all entities in the chain and ending with increased competitiveness towards the end consumer. To take full advantage of what supply chain management offers, an open relationship between buyer and supplier and an understanding of the other side are necessary. First and foremost, it is essential to focus on all categories of costs, on everything that can be influenced through joint work, from production planning, delivery, logistics, marketing to financing. Even in times of constrained liquidity in the overall economy, a joint approach can ensure financing for the supplier’s or producer’s inventory, but this requires bare trust and competencies from both sides.

This creates a vertical that can respond much more easily to market challenges compared to a group of fragmented entities trying to survive in a harsh environment. Mutual work certainly pays off due to increased cost efficiency across the entire supply chain. This efficiency becomes the basis for the competitive advantage of all entities in the chain, which is difficult to replicate. All of this significantly increases the overall competencies of all entities in the chain, as the learning effect about the processes of all involved entities and related costs must not be overlooked. This overall knowledge, after all, distinguishes us from economies and successful economic entities with which we like to compare ourselves.