“New era” to see more collaborative and sustainable supply chains

Posted by Daniel Palmer on 27th November 2009

The recession has raised concerns about commercial models, supply chains and finance that will reshape business behaviour well into the next decade, according to a British business organisation.

Launching its report “The Shape of Business – The Next 10 Years”, the UK’s leading business organisation said that the recession and credit crunch had become the catalysts for a new era.

The report flags four key areas of business where fresh approaches will develop because of the downturn:

* Businesses do not see credit terms falling back to pre-crunch levels and, having become wary of higher debt levels, firms will look to alternatives to debt-driven growth to protect investment and innovation. More financing options will be created and deployed.
* Companies will reorganise and re-examine their approach to working with partners – from suppliers to universities, and even competitors. Ongoing concerns over a ‘domino effect’ of supply chain failures and issues around trade credit insurance will compel firms to forge more collaborative supplier relationships.
* Sustainability and ethics will become more integrated into the business model. Firms will seek to improve accountability and corporate citizenship further to attract and retain customers and staff.
* A more flexible workforce will evolve, assisted by developments in technology and training, and building on the spirit of collaboration between employers and staff which has grown over the recession. For some firms that might mean a smaller core workforce and a larger ‘flexiforce’.

“We may be at the start of a new era for businesses, in which attitudes to finance and to corporate leadership are changed for a generation by the shock of the past two years,” Richard Lambert, CBI Director-General, suggested. “What we now need is a more balanced, less risky pathway to growth – one in which the short-term returns may be lower, but the long-term rewards for management success will be a lot more sustainable and secure.”

“And in a more collaborative, less transactional world, closer relationships with customers, suppliers, employees and shareholders look like becoming the new norm.”

Many of the report’s findings are supported by a new survey conducted by Ipsos MORI in October and November and sponsored by the CBI and business advisory firm Deloitte. The survey of business leaders, mostly CEOs and Chairmen revealed a shift in attitudes towards financing and supply chains.

Over half (55%) said that they will now only tolerate a lower level of risk from gearing and, within that group, 70% said an economic recovery would not reverse their position.

And when asked about supply chain fragility during the recovery, only 24% said that they are not concerned. Businesses were most worried about a unique, specialist supplier going bust; that the supplier’s own supply chain would collapse; and that the supplier would be unable to obtain working capital.

Because of these ongoing threats, 68% of firms said they would be strengthening the level of partnerships with suppliers in the coming years. One in three (30%) said they would be increasing their number of suppliers. And around one in five said they would be offering finance to key suppliers, reducing dependency on ‘just in time’ processes, and shrinking geographic distances to suppliers.

“Firms looking to reduce risk and acknowledge their interdependence are seeking more collaborative ways of working through partnerships and joint ventures. Perhaps we will see a flourishing of supply chain finance – in which firms with the largest, most solid balance sheets help finance their smaller suppliers or customers,” Mr Lambert added.