New Articles
  June 3rd, 2024 | Written by

Squeezing Suppliers Must Not Replace Shrinkflation

[shareaholic app="share_buttons" id="13106399"]

As France orders retailers to display shrinkflation, HICX’s CEO and supplier expert, Costas Xyloyiannis, warns manufacturers seeking alternative cost-cutting ways to not pass the burden to suppliers, because doing so invites the ultimate competitive disadvantage.

While squeezing suppliers on price may seem a safer substitute to shrinking product sizes, holding prices, and then displaying this move to shoppers, it is counterproductive. The old practice of beating suppliers down on price doesn’t work in today’s uncertain landscape. Now, businesses need resilience. But they will find themselves in a bind if they use suppliers to cut costs.

Read also: How to Save Money through Suppliers without Sacrificing the Value they bring

This doesn’t mean excluding suppliers from savings strategies, because suppliers have a host of value and cost-saving opportunities to offer. 

How then, do we proceed? The trick is to stop beating suppliers down on price and to start viewing them as partners.

It’s time for change

In the past, business leaders looking to protect profits have relied on procurement teams to push suppliers for lower prices, but this is no longer feasible. Now, suppliers have more agency and businesses really need them. We saw the shift during the Covid-19 pandemic when suddenly businesses became incredibly dependent on suppliers. They needed their best work, information, and loyalty – and they had to treat them accordingly.

A few years on, the relationship is still evolving towards equality. Macroeconomic events such as climate change and sanctions, have ensured that businesses continue to need suppliers and it’s now more important than ever for businesses to gain customer-of-choice status. A recent HICX survey showed that a staggering 73% of suppliers for some of the world’s biggest manufacturers would “go the extra mile” for their most important customer if this was also a customer-of-choice. 

Businesses have an opportunity to lean into this change. Doing so will help them empower suppliers to give their best and from this position, the parties can collaborate to find cost solutions. Further, businesses that are supplier-friendly can also receive other forms of value – such as quality ingredients, compliance information, ideas for innovation and much more – with which to boost resilience. 

The route to managing profits in inflation therefore is to give suppliers a helpful experience. 

Face data problems

While businesses often want to give suppliers a more helpful experience, many face an obstacle: inaccurate supplier data. Without accurate data, businesses and suppliers have a fractious time working together, which stops suppliers from giving the business vital information. Then, without this information brands end up blind to social and environmental risks. Additionally, they miss opportunities such as to innovate sustainably and elevate their reputations. Ultimately, inaccurate data makes businesses more susceptible to losing money or missing opportunities in which they might indeed make money.

Instead, businesses need to be resilient so it’s worthwhile addressing the supplier data issue. 

The best way to do this is to prioritize having a “single source of truth” in supplier data. Businesses can achieve this by collecting reliable information at the start of each new supplier relationship and then governing the quality of all supplier data thereafter. 

Communicate well

When supplier data is managed well, businesses can use it to communicate well with all their suppliers and give them a helpful experience. For example, accurate data makes it possible to segment suppliers into categories and to send requests or updates to only those groups to whom they apply. This saves every supplier from wading through communication material from the business to determine what might be irrelevant. Better communication means happier suppliers and a better chance of achieving the all-important customer-of-choice status.

With the ideal conditions in place, businesses can work together with suppliers to find cost savings. Additionally, they can receive vital information with which to manage risks and opportunities and be resilient. 

If manufacturers accept that it’s time for change and then fix their data and communication issues needed to improve supplier experience, then they can explore solutions to saving costs – without compromising competitive advantage. 

About the Author

Costas Xyloyiannis is co-founder and CEO of HICX, the leading supplier experience management solution. Costas founded HICX in 2012 to address the challenges of bad supplier data in the enterprise. 

He holds a Master’s degree in Computer Science from Imperial College London and has 20 years’ experience in helping some of the world’s largest companies to take control of their supplier data and deliver a superior supplier experience.

He strongly believes in the importance of data and supplier-centricity, as a foundation for digital transformation in business, and is a regular speaker and contributor on this topic.