Communication creates a shared understanding.

A shared understanding helps avoid

confusion and disagreement. Effective communication includes a regular and healthy dose of
face-to-face discussion. Contract Managers should avoid hiding behind emails. And
remember, communication is a two-way street.
Effective communication between buyers suppliers helps support long-term goals by building
a strong and trusting relationship in which both parties are comfortable sharing information
and working together to support these goals. Effective communication and trusting
relationships between buyers and suppliers mean that you’re ready to reveal the sale to your
supplier as soon as it becomes a strong possibility. They, in turn, could provide valuable
insight and will have a sufficient amount of time to prepare for the sale and to address any
unforeseen issues they encounter along the way.
Keep in touch with your suppliers and try and schedule a time to get together over a coffee or
a beer. Reflect on what’s working well and talk through areas for improvement.

Having the opportunity for both parties to provide feedback on what’s been helpful or
difficult can be the spark to develop innovative ways to strengthen the relationship even
further.

Transparency
Trust begins with transparency. According to Alexis Bateman of MIT, transparency requires
two components -- visibility and disclosure. Businesses first have to identify and collect data
from every supplier in the supply chain. Then, they must communicate the information to all
stakeholders, both internally and externally.

Some companies such as Nike and Apple create maps showing each contributor to their
supply chain. They include pertinent information on supplier performance so that
improvements can be made. This mapping creates a complete picture of the organizations
within a supply chain. It doesn't show the flow of goods but identifies the actors at each stage
of the process. This process highlights the relationships among suppliers.

Supply chain transparency is one way to enable communication among suppliers. With open
discussions, all parties can tackle issues that impact pricing, quality, and competitiveness. If a
supplier is unwilling to share data, a company has to wonder why. What is the supplier trying
to hide?

2. Collaboration
McKinsey surveyed more than 100 large organizations in multiple sectors about collaboration
in their supply chain. Companies that regularly collaborated with suppliers experienced
higher growth, reduced operating costs, and greater profitability. However, achieving high-
level collaboration was difficult, with many organizations lacking trust that everyone would
put the collaborative goals ahead of their individual goals.

To be successful, companies need to start with small collaborative efforts to demonstrate a

willingness to be transparent. L'Oréal uses transparency to build collaboration through its
supply chain. At an annual exhibition, the cosmetic company previews consumer trends that
will be addressed in the coming year. The company then asks its suppliers to create
packaging solutions to support those trends. L'Oréal's willingness to share its upcoming
product offerings and insights illustrates its desire for transparency and its value on
collaboration.
When companies are unwilling to collaborate, they need to ask if it is them or their suppliers.
If the hesitancy comes from a lack of trust in the supply chain, maybe it's time to reassess
suppliers.

Inventory planning

Forecast effectively with sophisticated planning tools

The most important part of efficient inventory management is forecasting accurately so you
can create reliable demand plans. For example, is your company doing a promotion that may
increase product demand? Do seasonal events, like Christmas or vacations, affect demand?
What products sell quickly, and which do you sell the most of? Accuracy in forecasting can
have a huge impact on profitability. There are two main inventory forecasting models:

Quantitative forecasting involves using past sales data to predict future demand. The more
data you have, the more accurate the prediction will be.

Qualitative forecasting relies on the knowledge of experienced experts to predict demand

based on less measurable factors like potential demand and market forces.

While the latter method is more of an art than a science and takes a while to finesse, the
former method can be easily used when you have the right systems in place. A
comprehensive ERP solution will provide visibility into all data that impacts your forecasts,
helping you plan more effectively and boost profits.

Inventory Level
The primary objective of inventory management control is to determine and maintain an
optimal level of inventory, which helps free some investment capital and reduce inventory
holding and handling costs. A small business should avoid either overstocking inventory or
running the risk of inventory stock-outs. Keeping too much inventory on hand not only
increases costs, but it also subjects inventory to potential deterioration and obsolescence. On
the other hand, keeping the inventory level too low may disrupt normal business operations.
By implementing a just-in-time inventory order system through better supplier relationships,
a business can improve its inventory management control, and thus, keep the inventory level
leaner.

Accounting Records
Maintaining up-to-date accounting records of the inventory account helps improve inventory
management control. Accurate inventory records of the amount of inventory on hand at any
given time are essential in managing and controlling inventory. Businesses may use either the
perpetual inventory system or the periodic inventory system to keep their inventory records.
Under the perpetual inventory system, inventory purchases and uses are directly recorded in
the inventory account as pluses and minuses respectively, allowing a business easy access to
inventory information. Under the periodic inventory system, a separate purchase account is
used to record inventory purchases, and the inventory account shows only the beginning or
ending balance. The periodic inventory system requires a physical count of ending inventory
to help determine the amount of inventory used during the period.