As the supply chain transforms itself into a more tech-savvy, transparent ecosystem, suppliers are now casting eyes at buyers for their contributions to compliance—or lack thereof—and a new index has taken to ranking these buyers for their often erring ways.
An initiative set to support industry-wide transformation in buyer purchasing practices, Better Buying has launched the Better Buying Purchasing Practices Index. In a first-of-its-kind effort, the index benchmarks buyer purchasing practices across global supply chains.
One finding emerging from the index was one signaling that 60 percent of suppliers aren’t incentivized for being compliant with the codes of conduct buyers set out for them to adhere to. And many buyers aren’t paying any more for their additional demands—which don’t come without costs for suppliers.
“Current business practices are unsustainable and need to be overhauled if we expect companies to achieve financial, environmental, and social sustainability goals,” Marsha Dickson, Ph.D., Better Buying co-founder, said. “Brands and retailers must provide their suppliers with predictable business, sufficient lead times, fair financial deals, and incentives for compliant factories. The BBPPI empowers suppliers to share concerns about poor supply chain management and the issues they face.”
Taking data submitted anonymously by suppliers through its online platform, Better Buying rated buyers purchasing behavior based on seven categories: planning and forecasting; design and development; cost and cost negotiation; sourcing and order placement; payment and terms; management of the purchasing process; and CSR harmonization.
Ranking buyers on a 1 to 5 scale, 5 being the highest score, the results came up underwhelming.
“The average overall score for buyers in this cycle was 2.5 stars,” the report noted. “The best performing category was Payment and Terms with 4.5 stars, while the worst performing category was Sourcing and Order Placement which received an average of 0 stars.”
This means, according to Better Buying, “that suppliers were not rewarded for compliance to their codes of conduct and legal requirements and receive highly inconsistent order volumes from month to month.”
In particular, buyers in North America (0.5 stars) did better than buyers in Europe (0 stars) and Asia Pacific (0 stars) where sourcing and order placement was concerned.
Buyers, at times, expect the impossible from suppliers and then penalize them when they can’t deliver it. It’s a practice and process that does little to support the more ethical supply chains the industry is calling for.
“Large and unpredictable order requests with tight timelines at the lowest possible cost are known to place significant hardships on suppliers, often resulting in substandard factory and environmental workplace performance,” the report noted. “Poor practices can also prevent suppliers from running sustainable businesses and post potential risks in supply chains.”
Monthly orders can fluctuate from 20,000 units a month to as much as 800,000, or 137 percent order risk-to-reward (ORR), meaning risk that is more than 100 times the reward, Better Buying said.
In North America, business from buyers was more consistent, with an ORR ranking of 85.4%, compared to more volatile fluctuations in Europe/UK with an ORR ranking of 123.8% and Asia Pacific, which ranked 144.1%.
What this kind of behavior contributed to, according to findings from the index, was suppliers having employees work more overtime than what’s legally allowed, unauthorized subcontracting and even layoffs.
Buyers’ planning and forecasting is also in critical need of improvement, with more than half of respondents indicating the receive production forecasts just 59 days or fewer ahead of order placement.
“If the buyer reserves capacity for 100,000 units and comes in 40 percent over, the supplier now needs to find space to produce 40,000 more units. Even with 20 percent difference, the supplier is still looking for ways to produce 20,000 more than planned,” Better Buying pointed out. And the options? More overtime and more subcontracting.
The bottom line in Better Buying’s findings was that buyers can’t want everything—whether reasonable or otherwise—offer nothing and expect compliant results.
“Without predictable business, adequate production time, mutually beneficial financing, and incentives for suppliers helping to achieve shared goals, there can be no sustainable business for suppliers or buyers,” Better Buying noted.