Originally published by Construction Executive on October 6, 2020. You can view the original post here.
As the world continues to weather the worst pandemic outbreak in more than a century, causing disruptions across a wide swath of businesses, contractors that navigate the current crisis alongside their suppliers and vendors will be in a better position to keep afloat, now and in the future. How can contractors manage their supplier and vendor relationships through the storm of disruptions caused COVID-19? Vital to managing these relationships is open communication, collaboration and the contractor’s candid assessment of its supply chain.
Like all good relationships, communication is key. Certainly, communication in contractors’ professional relationships is essential throughout every phase of construction—and procurement is no exception. Particularly during this time of global upheaval, where many are struggling against reduced cash flow, contractors are well-served keeping communication lines open with their suppliers and vendors. This should be a two-way street of transparent information sharing ,beginning with a phone call to each top-tier supplier/vendor with the goal of understanding one another’s situation. Contractors should engage in an empathetic conversation to check in: ask how the supplier or vendor is doing, what its business is experiencing in terms of labor, production and projected distribution, and what can the contractor offer in support.
Likewise, the contractor should keep its suppliers and vendors updated on its business, including any operational or customer changes that affect it, and should not shy away from voicing ways its suppliers/vendors can help. These conversations can then continue on a regular basis using multiple touchpoints and in different formats such as email—allowing for efficient risk-assessment, recovery and response by both sides as new challenges arise. For example, by being proactive and informative in communications with its suppliers and vendors, the contractor is more likely to identify changing demand and inventory levels at an early stage to locate critical gaps in supply, production capacity, storage and transportation. Such were the circumstances for a Florida-based construction firm that, through open communication with its suppliers, was able to forecast shortages at the onset of the pandemic, secure high-demand product in bulk over the summer and negotiate favorable terms and pricing structures, including for extended warehousing. Maintaining open communication will also help contractors establish and maintain trust and, importantly, foster collaboration with its suppliers and vendors.
It is no secret that the contractor shares a mutual dependency with its suppliers and vendors—when the business of one is depressed, the other’s is typically impacted. Having established itself as a partner suppliers and vendors want to work with during and (hopefully) post-pandemic by going above and beyond with communication, the savvy contractor will leverage its strengthened supplier and vendor relationships to encourage collaboration. The parties may, for instance, work together to remediate pitfalls, backlogs, and liquidity challenges or identify opportunities on timelines, price points or mutual cost-downs. The lynchpin of successful collaboration is defining common goals (whether project-specific or broader in scope) and an actionable short-term and outcome-driven strategy. Certainly, sharing ideas in collaboration can lead to innovative, creative solutions—and even improved pricing or margins for contractors and suppliers/vendors.
However, just as it is in suppliers’ and vendors’ best interests to nurture good relationships to grow and develop their businesses, so the contractor should remain focused on supplier and vendor relationships built on trust, cooperation and mutual best interest—rather than price alone,—to safeguard business continuity and stay ahead of any further disruption. To that end, contractors should undertake a candid assessment of their supply-chain as an additional step in managing their supplier and vendor relationships.
Ideally, through communication and collaboration with its top-tier suppliers and vendors, contractors will be able to map their own supply networks all the way down to the raw materials suppliers (or as many tiers as possible, because there may be hidden critical suppliers the contractor is not aware of). In fact, contractors may opt to include language in the initial contract that requires its suppliers and vendors to participate in supply-chain mapping efforts. Once the contractor has better visibility of the structure of its supply chain, it will be able to identify quickly at-risk suppliers, vendors, locations, factories, products and components. Some helpful questions to assist in supply-chain evaluation include the following.
- Which suppliers and/or vendors can negatively impact the contractor’s most important projects, systems, or products? (For example, many U.S. contractors have reported difficulty acquiring domestically-manufactured HVAC equipment and critical components during the pandemic.)
- Which suppliers and/or vendors pose inherent risks to the contractor’s business because of poor financial viability?
- Which suppliers and/or vendors represent the largest financial costs to the contractor’s business?
- Which suppliers and/or vendors have the capacity to manufacture and/or ship from alternate locations and how long would it take to make a switch if necessary?
- Which suppliers and/or vendors are susceptible to shipping problems, international turmoil and overseas shortages (e.g., light fixtures manufactured in China)?
The supply chain assessment process will allow the contractor to better manage its supplier and vendor relationships; put risk mitigation plans in place (such as alternative, and potentially local, sources of supply where feasible); and position itself to act with flexibility in securing constrained inventory and capacity at alternate sites without significant delay.
The novel coronavirus caught the whole world—including the construction industry—by surprise, with the effects of its shockwave still rippling into the foreseeable future. Contractors’ circumstances will affect their perception of the pandemic and its impact on their businesses, as well as their ability to withstand the challenges that may still lie ahead. To borrow from Damien Barr, “We are not all in the same boat. We are in the same storm.” For those contractors seeking safe harbor from the continuing disruptions caused by COVID-19, management of their supplier and vendor relationships will increase the chances of their emerging together in smoother waters.
