Executive Briefings

Give Your Suppliers a Break, JPMorgan Says, and Stop Making Sourcing Relationships All About Price

And while we're on the subject of collaboration with suppliers, consider the words of Sara Ireton, assistant vice president of JPMorgan Chase. In a recent paper, she says supplier-buyer partnerships must consist of three basic business principles: "compliance with local and international regulations; conduct that breeds honesty, respect and open dialogue; and strategic financing that benefits both parties." Ireton says partners need to take a periodic look at how they jointly address these areas. On the compliance side, she says, it's essential to know not just one's customers and suppliers, but their customers and suppliers as well. "One cannot plead ignorance if found conducting business with a restricted party," she says, adding that companies should consider outsourcing the screening function to an experienced third-party. Once security clearance has been assured, companies can move on to the task of approving supplier conduct. Unethical business practices - such as the tainted contents found recently in some Chinese-made goods such as dog food - can wreck a supply chain. Businesses must undertake a rigorous review of their suppliers, Ireton says, examining such issues as employee benefits and facility conditions. Finally, there's the financial aspect of supplier relations to consider. Beating up suppliers on price isn't wise, says Ireton - it can erode vendor trust and loyalty. Good long-term relationships must also take into account product quality, especially in such sensitive areas as consumer goods and high-end apparel. Such an approach can include payment terms, says Ireton. Companies should look at alternative payment methods, such as a shift from traditional to private-label letters of credit, or away from L/Cs to open accounts. Terms of payment can be extended as well. Each approach, though, has its trade-offs. A move away from L/Cs can hinder the supplier's access to financing, increasing transactional risk to both parties. "This is a conversation for the treasury department to have with the company's financial service providers," says Ireton. She further recommends that buyers consider paying for goods in local currencies, to shield suppliers against fluctuations in the value of the dollar. At the same time, she says, importers can begin managing currency risk through their own banks, relieving suppliers of that particular burden.

www.jpmchase.com

And while we're on the subject of collaboration with suppliers, consider the words of Sara Ireton, assistant vice president of JPMorgan Chase. In a recent paper, she says supplier-buyer partnerships must consist of three basic business principles: "compliance with local and international regulations; conduct that breeds honesty, respect and open dialogue; and strategic financing that benefits both parties." Ireton says partners need to take a periodic look at how they jointly address these areas. On the compliance side, she says, it's essential to know not just one's customers and suppliers, but their customers and suppliers as well. "One cannot plead ignorance if found conducting business with a restricted party," she says, adding that companies should consider outsourcing the screening function to an experienced third-party. Once security clearance has been assured, companies can move on to the task of approving supplier conduct. Unethical business practices - such as the tainted contents found recently in some Chinese-made goods such as dog food - can wreck a supply chain. Businesses must undertake a rigorous review of their suppliers, Ireton says, examining such issues as employee benefits and facility conditions. Finally, there's the financial aspect of supplier relations to consider. Beating up suppliers on price isn't wise, says Ireton - it can erode vendor trust and loyalty. Good long-term relationships must also take into account product quality, especially in such sensitive areas as consumer goods and high-end apparel. Such an approach can include payment terms, says Ireton. Companies should look at alternative payment methods, such as a shift from traditional to private-label letters of credit, or away from L/Cs to open accounts. Terms of payment can be extended as well. Each approach, though, has its trade-offs. A move away from L/Cs can hinder the supplier's access to financing, increasing transactional risk to both parties. "This is a conversation for the treasury department to have with the company's financial service providers," says Ireton. She further recommends that buyers consider paying for goods in local currencies, to shield suppliers against fluctuations in the value of the dollar. At the same time, she says, importers can begin managing currency risk through their own banks, relieving suppliers of that particular burden.

www.jpmchase.com