How A Strategy from the Automotive Industry Can Help with Supply Chain Issues

• Standard
• e-procurement, supply management

Since 2020, businesses in every industry have had to contend with supply chain disruptions. It’s harder and harder to guarantee that your suppliers will be able to fill your orders. And if they can fill orders, there are often delays on their end or with shipping.

These delays are understandable given the problems the pandemic caused for all types of businesses. However, it’s frustrating and it’s bad for your business. Especially when you have sole-source suppliers who can’t deliver on needed items and you don’t have a backup option for another supplier.

This isn’t the first time that companies have dealt with supply chain issues, though. The problem is currently more widespread than usual, but this is familiar ground, especially for certain industries. For example, automotive suppliers and manufacturers have been finding ways to manage supply chain challenges for decades. One of their strategies, called an “accommodation agreement,” might be useful for your company as well.

Accommodation Agreement

In automotive manufacturing, one distressed supplier who can’t fulfill orders on time because of a financial, logistical, or operational problem can wreak havoc with production. Often, automotive industries use a lean supply chain strategy and there isn’t an inventory buffer to help if a supplier can’t fulfill orders.

One tool that the automotive industry uses to resolve these issues is negotiating a legal accommodation agreement. These agreements can take a variety of forms depending on the needs of both companies. Generally, they involve the customer agreeing to accommodations that will help keep the supplier afloat.

Examples of accommodations include financial support from the customer, such as expedited payments or purchase of raw material from the supplier before moving production to a new supplier. Another common accommodation is that the customer agrees not to contract with another supplier for a set time period. The agreement may also include some accommodations from the supplier. One example is suppliers providing the automotive company with access to its facilities so they can bring in people to produce needed parts.

Supporting Supply Chains

Key strategies from accommodation agreements could work in other industries as well. The goal is to find ways to help suppliers get the resources they need so that they can fulfill orders and continue supporting your business. This helps solve supply chain issues and strengthens business relationships.

According to restructuring lawyer David G. Dragich, the most important requirements are “some creative thinking, cooperation, and compromise among parties who all have a lot to lose if a key supplier goes down.” If you want to explore this option in your company, you’ll want to make sure your company’s legal department is involved as well as financial and supply chain stakeholders.

Assistance from Automation

Business process automation software can’t solve supply chain issues. But it can provide important assistance in supporting and implementing the solutions that you come up with. For example, automated supplier management systems make managing relationships with suppliers much simpler. It can also help your company get away from single-source suppliers and build backup options into your supply chain.

Automating procurement, accounts payable, and document management helps streamline the departments involved in supply chain management. Get in touch with NextProcess today to learn more about how our flexible, customizable software solutions can help you improve supply chain management.