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The business world is constantly changing, and the last few months of political turbulence and tariffs have put more pressure on Procurement organizations to re-strategize their ways of working. The current tariffs set by USA, European Union, and China are changing at what feels like an hourly basis, creating an unprecedented nature for organization to manage their supply chains and production. Swedish manufacturing clients are facing the potential impacts of a three-way trade war, hindering their operations and supply chains despite some recent reliefs from the original trade tariffs that reached over 100%.
Many industries are already feeling the strain. The U.S. has imposed tariffs as high as 50% on European steel and aluminum, directly affecting major Swedish exporters. The automotive industry is also under immense pressure, with a substantial share of Sweden’s vehicle exports going to the U.S., now facing 25% tariffs. This has forced companies to seek alternative suppliers and shift production, often at higher costs and longer lead times.
In this article, we will deep-dive into Supplier Relationship Management and present several methods and ways of working for how Procurement organizations can work with their supplier portfolios and towards long-term supplier partnerships. At Opticos, we strongly believe and encourage Procurement organizations to review their strategies towards supplier relationships in response to the ever-changing nature and potential trade wars.
Today’s Procurement organizations have faced multiple challenges stemming from market pressure, inflation and geopolitical influences. In the last months another trouble-some pressure has been added through tariffs arriving from both China, EU and USA adding further complexities for export-oriented organizations.
For Procurement, it has therefore become increasingly important to review current ways of working as well as identify and adapt new methods towards Supplier Relationship Management (SRM). Historically, before Procurement was considered a strategic function by organizations, supplier relationships were handled purely as transactional or, at best, as basic operational relationships. Today, the success of an organization is contingent upon an efficient and timely supply chain operation, supplier-driven innovation, cost efficiencies, and swift adaptations to global disruptions, allowing Procurement to grow into a strategic organizational function.
To ensure strong swift adaptations to global disruptions, Procurement organizations are now more focused on SRM for long-term relationships and generating valuable partnerships beyond the mere transactions of goods and services. In today’s business world with increasing tariffs and macroeconomic trends, we at Opticos believe more than ever that Procurement organizations need to focus on and establish strong SRM practices.
Recent tariffs and today’s volatile geopolitical landscape have certainly added complexity to Procurement processes. To navigate these challenges effectively and fully leverage the potential of SRM, Procurement organizations can adopt various methods and ways of working to mitigate these issues.
Diversifying the supplier base involves engaging with a variety of suppliers across different sizes, locations, and capabilities. This approach reduces reliance on a single supplier or region, minimizing the impact of disruptions from geopolitical instabilities such as tariffs and material shortages. By spreading risk across multiple countries or regions, Procurement organizations can better navigate the economic uncertainties and e.g. avoid over-dependence on a single country affected by the tariffs. Additionally, a diversified supplier base provides greater flexibility and agility in responding to market changes. Procurement can more quickly shift sourcing strategies based on changing economic conditions, ensuring organization remain competitive and resilient.
Reducing the number of suppliers is another strategic approach for Procurement in meeting the risks of today’s geopolitical uncertainties. By streamlining the supplier base, organizations can mitigate risks associated with supplier dependency, ensuring more stable and secure supply chains. This approach not only reduces the complexity of managing multiple suppliers but also enhances the reliability of the supply chain.
Efficient communication with a reduced number of suppliers becomes more manageable, fostering stronger relationships and better collaboration. This streamlined communication can lead to quicker response times, more effective problem-solving, and a deeper understanding of mutual needs and capabilities during these unstable periods.
Implementing Strategic Supplier Segmentation involves identifying and prioritizing critical suppliers who are crucial to operations. By working closely with these key partners, Procurement can ensure stability and mitigate the geopolitical risks. This close collaboration is further enhanced by strengthening communication and collaboration. Regular meetings with these critical suppliers allow for discussion on the impacts of tariffs and to jointly develop strategies to address them. This ensures that both parties are aligned and can work together to find effective solutions.
Using supplier scorecards to evaluate and improve performance is an essential tool when implementing strategic supplier segmentation. These scorecards help Procurement organizations assess and categorize suppliers based on metrics beyond cost, such as quality and innovation, which allows them to focus on critical suppliers and identify areas for improvement.
Investing in the right procurement technology and tools is vital to ensure growth and ability during unstable periods. Maintaining an updated technology inventory of support tools will allow procurement organizations to utilize software to track tariff changes, production/supply chain complications, and manage supplier relationships more efficiently. The access to real-time data can severely influence procurement strategies including the selection of vendors, diversification of supplier base and attempts to secure supply chain disruptions.
Investing in the right technology for SRM enables a fit-for-purpose procurement organization to build stronger and strategic partnerships with suppliers. This will enhance supplier visibility in the supply chain, allowing for better risk management practices and performance tracking. With the right technology support, procurement can automate operational routine tasks, gain real-time data insights, and take data-driven decisions. Ultimately, SRM technology transforms supplier interactions from transactional to strategic, unlocking long-term value for the organization.
Focusing on long-term relationships with suppliers is crucial for fostering mutual trust and collaboration, especially during times of economic uncertainties. By establishing strong partnerships, Procurement organizations can create a stable and reliable supply chain that benefits both parties and helps navigate global market complexities. Developing these long-term partnerships involves more than just transactions, it requires a commitment to common goals. Investing time and resources into these relationships builds a foundation of trust, enabling us to respond quickly to challenges, including geopolitical shifts and tariff changes.
Encouraging suppliers to innovate is another key aspect. By encouraging an environment where suppliers feel empowered to propose new ideas, we can drive continuous improvement and find cost-effective ways to mitigate tariff impacts. Innovation can range from process improvements to new product development, benefiting both parties.
The future of SRM will continue to focus on the integration of digitalization through AI and predictive analytics for supplier performance and risk assessments. Digitalization will enable Procurement teams to foster their long-term relationships through real-time dashboards for supplier performance monitoring and navigation of complex market situations. Procurement through SRM methods is predicted to continue establishing collaborative supplier ecosystems where the focus will shift from transactional to strategic partnerships. Examples of long-term relationship activities that we predict will become more present is to jointly with suppliers engage in scenario planning and risk modelling sessions to ensure all parties are prepared for any sways in the volatile market. Further, Opticos believe that suppliers will be even more engaged in co-innovation and digitalization efforts as part of the overall SRM process.
In today’s volatile geopolitical landscape, Procurement organizations face numerous challenges, including tariffs and market pressures. Effective Supplier Relationship Management is essential for navigating these complexities and ensuring stable and efficient supply chains. This involves adopting various ways of working in order mitigate risks but also foster innovation and collaboration, including:
To put this into action, review your current supplier segmentation, identify key relationships that need strengthening, and initiate a dialogue with suppliers on long-term collaboration. These steps will help your organization move from reactive to resilient, and from transactional to truly strategic.
Opticos possess deep experience from supporting Procurement teams in securing an effective SRM by offering tailored practices and hands-on experience from several industries. With our guidance, organizations can re-focus their work towards strategic and long-term supplier partnerships ensuring resilience and sustainable growth in this ever-changing global environment.
Agnes Lundvall & Mattias Johansson
