Developing Country Supplier Risks

So tell us a bit about supplier risks.

Our primary role is to source authentic quality products for buyers in developed markets. The products are relatively hard to get a hold of because they are made by producers in developing countries who often face substantial social and economic challenges.

So you act as a link between the two.

Sure, but getting to market is only part of the story. To operate effectively, we need to service buyers who have expectations regarding the level of support that a product gets. We build our credibility through our consistency of supply as well as the marketing efforts that we place to back our products.

These are activities that you take on, so where does supplier risk come in?

The risks related to production standards and the capacity to produce quantities are eliminated when we first screen the producer. That said, we also look for suppliers who have a strong ability to conduct research and development so that we are able to quickly adjust products based on market feedback and recommendations.

Putting aside country risks, we have to also deal with risks that are associated with our producer profiles: small or medium-sized, rural, and located in countries that are not fully integrated into the global economy. We can define these risks as being sets of skills that our suppliers might lack.

Can you give us examples of these?

Sure, but let me start by saying that when we first go with a producer, our focus is on building a personal relationship with them. This is the beginning of a commercial relationship and its success will depend on how we work with them as a team.

I say this because to start a relationship from a social / developmental perspective clouds its true purpose. The objective is not for us to provide support or build skills for the sake of it, but rather for them to learn new skills through the necessities of a commercial opportunity. This has sometimes been a point of contention for us with our NGO partners but we can go into that in a later post.

So you consider that your proposition to suppliers can also carry certain risks?

Sure and some of our producers did get side tracked into focusing on the support that NGOs gave them. This came at the expense of our relationship, but these things will happen I suppose.

Going back to supplier skills.

Having assessed the supplier’s production process and capabilities, we are forthcoming in our views on the product and its potential, while explaining to them the significance of the first order. We then get into the nitty gritty of pricing, and are ourselves transparent with the margins that we look for and with those of our distributors. We also explain to them retailer margin expectations, and go over our findings on the competitive situation and the suggested retail price for their product. We then discuss their own pricing in view of this information, as well as cover trade terms and the how risk sharing plays out across the supply chain.

And this tells you something about their commercial skills?

One usually gets a good sense of the supplier’s integrity and capabilities from the existing state of their business, and from the people in their operations. The drive and perseverance that are required to succeed can only become apparent with time so absolutely, the conversation is very indicative of their experience. A lot of things come out at this point and it’s fair to say that we have a good idea of some of the challenges that we ourselves will face in making the relationship work.

So if you do identify skills shortages at this stage what might they be?

Other than the often very local nature of the business and the general lack of experience in exporting, they will of course vary from person to person. We can however classify the skills as either relational or technical.

Putting aside idiosyncrasies, relational skills are those that are developed from the experience of working with others. These might include things like understanding client relationships, deadlines and working in teams, but also include things like time management and planning.

Technical ones are those that are more foundational in nature. They might include for example limited knowledge of and use of spreadsheets, a lack of basic accounting, pricing & costing principles, poor researching and business planning basics, and sometimes an attachment to a homegrown take on sales and marketing.

Ok, what then?

Well, that depends on what we find. Our first real initiative is taken if the trial order performs well enough for us to go for the second. At this stage we propose a logical framework to them, a sort of road map that highlights key junctures where certain skills will be needed. These are matched to objectives and outcomes and in this way they can anticipate what is required from them at each point and hopefully prepare themselves for it.

From our end, we have set up logistical partnerships to support our suppliers with shipment and are always geared up to support them financially so that the resources are there to enable them to execute the order.

Does this work?

This is essentially a way for us to try and manage the risks: to anticipate problems and to try and avoid mistakes. Whether it works or not depends in large part on the supplier. Businesses everywhere are fraught with imperfections or lacks in professionalism, so these issues are not necessarily confined to developing countries.

The problem that we have is that whereas in places like the U.K the market tends to hold you accountable for your imperfections and mistakes, our developing countries suppliers do not necessarily operate under the same pressures.

It’s also been our experience that for many of these suppliers, short term gain is far more important than long term success. In some ways this is justified because of the context of survival in what are sometimes unstable environments. In other ways it is a shortsightedness that becomes ingrained in their business practices, becoming a hindrance to entrepreneurship if you like and to the prospects of creating significant markets for themselves abroad.

Does it work? The degree of our success is always tied to the readiness of the producer to respond and develop. Successful businesses can be created by people who lack many skills, including sometimes an education altogether, so it is through our working relationship that we try to pass on our experience and know how.

For us the important thing is to put our efforts in trying to make it work, and when it does it’s very rewarding for both parties, not only financially but also in that it fulfils and projects the hope.

Let’s discuss some of these experiences next time.

Sure, with pleasure.

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