Volkswagen’s last-minute save shows how important Supplier Relationship Management is for avoiding supplier disputes.
Volkswagen: Major Damage
Volkswagen has saved its production from disaster and come to an agreement with a major supplier, the Prevent Group. The two companies had negotiated a contract, which VW then cancelled. The automobile giant refused to pay for changes that the supplier had made to its factories to meet the order. The Prevent Group then stopped deliveries of transmission and seat components to VW. This brought the production lines of the Golf and Passat to a complete halt.
The cost of the delivery block have been large for VW. The financial damage must go into millions of euros. On top of this, VW had 10% of its employees with nothing to do because the production line had shut down. It is difficult to estimate the damage caused to VW’s brand, especially because it has suffered from plenty of bad press recently. The emissions testing scandal has already shaken trust in the VW brand.
The dispute is proof of the importance of Supplier Relationship Management to Direct Procurement. SRM is also vital to business continuity and the survival of a company. Right now, we don’t know for sure why the dispute went as far as it did. But it shows how connected manufacturers are to their supply chains. Because Procurement is tasked with the all-important bottom line, these relationships can be challenging.
In high profile cases, suppliers have accused corporations of squeezing them for lower prices. They have also accused them of passing on costs unfairly to reduce spend. One example from the music industry is the dispute between Apple iTunes and Taylor Swift. The musician accused iTunes of passing the costs of its 3-month free trial subscription offer onto musicians. iTunes backed down after Swift wrote a public letter to its CEO and refused to sell her new album on iTunes. So, in effect, she cut off supply. She also caused serious brand damage, especially by claiming that iTunes was hurting smaller artists.
How can you avoid supplier disputes?
There is no silver bullet for avoiding supplier disputes. But, understanding your suppliers can help you to identify both risks and opportunities early. It can also help you avoid making mistakes. Supplier Relationship Management and Risk Management are so connected that they are indivisible.
At POOL4TOOL, we work with many clients in the automotive industry. Each client is unique, but of course, manufacturing industries use Direct Procurement very heavily. SRM is key in Direct Procurement. In Direct Procurement, supply chain disruptions can completely halt your production line. The Volkswagen supplier dispute is a classic example of this.
360° Supplier Relationship Management
A best practice in SRM is having a 360° view of your suppliers. What does this mean? Beyond cost and your requirements, you can start to build a 360° view of them by looking further. This includes knowing what their corporate relationships are. This is a form of basic due diligence, which can see opportunities as much as risks.
You can also share internal knowledge about that supplier in your Procurement team. An example is supplier performance ratings, including both soft and hard facts. Of course, this includes delivery reliability and the number of quality incidents. But, on top of this, this includes what the quality of the experience of working with this supplier has been. Of course, knowing which contracts you have with which suppliers is important. There are also great ways of bringing in knowledge from industry experts on CSR, financial risk, and supply chain risk with third party content subscription services.
We’ve worked with many customers to build 360° SRM for Direct Procurement. We are excited to develop the software solutions to help them achieve this vision. We are also able to bring best practices from our years of experience in a field that is always evolving.
So, we can say - 360° SRM is a great way to avoid supplier disputes.