The Benefits of a Supply Agreement are mutual

Blog | Richard Gyde, Managing Director

With Brexit uncertainty continuing to cast a very long shadow across the market, the issue of supply agreements is coming up with increasing regularity in our conversations with customers.

For fabricators, of course they offer guaranteed levels of service, while for suppliers like Mila, they offer greater transparency in terms of demand forecasting.

What is making them particularly appealing to customers at the moment is that they mean that fabricators don’t need to tie up their own cash in stock. Instead, they can pass much of that risk onto their supplier in exchange for regular updates on their sales plans.

In the past, fabricators have largely been reluctant to consider formal supply agreements, preferring to retain what they perhaps considered to be a better bargaining position. But Brexit, and particularly the threat of a no deal, is making many of them question that wisdom and take another look at the potential benefits.

As our Supply Chain Director Oliver Burgess has pointed out in the press recently, what fabricators need above all at this time is continuity for their businesses, and I would argue that one of the best ways of achieving that is to partner with their supplier in a formal agreement.

As an example, Mila’s supply agreements guarantee a minimum line OTIF for our customers which is typically 99%. Customers know that they will simply never be out of stock on products that they buy from us and in turn never risk any interruptions to their production – no matter how quickly, or how slowly their order book grows. That’s hugely reassuring and comes down to the fact that our supply chain is highly sophisticated, and we are simply experts at what we do.

We have spent years perfecting our global supply chain and managing all the complexity which comes from sourcing and shipping our products from offshore. We invested in a major IT upgrade last year to give us access to even more sophisticated forecasting algorithms and we are certainly leading the market when it comes to demand planning.

That becomes particularly significant when we hear reports from the market of shortages on some key products from other suppliers who might perhaps be choosing to focus on their own year end cash position targets, or who have been affected by external forces in a way that Mila’s more robust supply chain has not.

Supply agreements go way beyond guarantees about stock availability though. They can set out everything from next day delivery guarantees to pricing structures depending on currency and commodity price fluctuations. They can also guarantee long term continuity of service so that suitable replacements will always be available for products sold with a warranty and can include disaster recovery strategies to protect against unforeseen circumstances, with dual sourcing firmly in place.

Mila addresses ethical and environmental issues in our supply agreements as well which fabricators can communicate positively to their target customers. For instance, we demand that our suppliers in China guarantee ethical standards in line with the ETI Base Code and we have programmes in place designed to deliver ongoing reductions in packaging,

With all these benefits for customers though, you might be asking what’s in it for Mila? Well, the most obvious and overriding benefit is continuity for our business. If we know in advance the volumes which customers will be buying then we can manage our business better and deliver a better and more consistent service. It is true that we are likely to have more cash tied up in stock than many of our competitors, but this is not speculative investment when we have sight of a customer’s sales forecasts for the next three months.

We believe in being fair and honest with our customers and we think it works best when they are fair and honest with us in return.  Probably our highest profile supply partner is Safestyle, with whom we have had a formal supply agreement in place for nearly 30 years. The relationship between us is based on trust and openness and Safestyle’s willingness to commit to Mila means they receive outstanding levels of service and guaranteed stock availability no matter what the market – or Brexit delivers.

Richard