Christian Schuh, senior partner and managing director of Boston Consulting Group, emphasizes the importance of knowing, and working closely with, one’s major suppliers in a multi-tier manufacturing supply chain.
Schuh is a co-author of a new publication from BCG, Profit From the Source: Transforming Your Business by Putting Suppliers at the Core. It outlines ways in which top executive can get closer to their most critical suppliers.
Companies spend up to 70% of their budget on suppliers, yet recent research by Harvard Business School reveals that chief executive officers spend an average of just seven minutes with their suppliers. That oversight creates huge risks in global supply chains. “CEOs should spend 20% to 25% of their time with suppliers that matter,” says Schuh.
It's not just a question of focusing on the big tier 1 suppliers, he adds. It’s equally important that executives engage with suppliers at the tier 2 and 3 levels, entities that many have ignored up to now. As a result, manufacturers have found themselves unable to produce goods in the event of an interruption of supply. That’s precisely what happened to automakers and other high-tech producers with the shortage of semiconductors. “They were like beggars with hat in hand, asking for parts,” Schuh says. “You don’t want to be in that type of situation.”
Recent crises have highlighted the need to diversify supplier bases. But Schuh says manufacturers can still establish exclusive ties with key suppliers, as long as product is coming from multiple geographies.
It’s vital that CEOs build relationships with their counterparts at suppliers that they identify as critical. “In the end,” says Schuh, “this is a competition and battle for mindshare. You want executives at your suppliers to spend more time thinking about you than about your competitors.”
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