The business world is the most complex, interwoven, ever-shifting community on our planet. No man is an island? The saying is truer for an organisation. We are, in essence, only as strong as our supply chains. It follows, therefore, that building strong supplier relationships must be a core tenet of procurement. And it is.
Yet, the vast majority of businesses don’t give it enough thought. Despite its cardinal significance, Supplier Relationship Management (SRM) often finds itself relegated to the peripheral of operational strategies. The consequences of such oversight are far-reaching, rippling through the supply chain and potentially stymieing an organisation’s ability to respond adeptly to market exigencies.
A shift from a relentless focus on Strategic Sourcing to a more balanced approach encompassing robust SRM. The conventional practice of adhering to 3 + 1 + 1 contracts often entangles organisations in an unending cycle of Request for Proposals (RFx), a process steeped in cost-efficiency yet oblivious to the rich vein of value lying within nurtured supplier relationships. The brunt of incessant RFx cycles isn’t borne by the organisation alone. It also cascades to the supply market, frequently spawning a landscape rife with missed opportunities for value co-creation. Ask any supplier.
By placing SRM at the heart of procurement strategy, organisations can transcend transactional boundaries, fostering a culture that appreciates and leverages the potential vested in supplier partnerships. This transition isn’t merely about risk mitigation or cost efficiency; it’s about engendering a collaborative ethos that catalyses innovation, enhances adaptability, and propels organisations towards a sustainable competitive advantage.
Building strong supplier relationships isn’t exactly rocket science, but it’s no walk in the park either. To figure out if your organisation has what it takes, let’s start with some common sense. Ask yourself: Do we communicate openly and honestly with our suppliers? Or is it all smoke and mirrors?
Next, consider respect. Do you genuinely respect your suppliers, or is it a purely transactional affair? And fairness, are your dealings on the up-and-up, or do you play hardball?
Answer these questions, and you’ll get a pretty good read on your capability.
Practical steps to strengthen supplier relationships
Supplier Development: Growing Together
Supplier development isn’t just a one-way street; it’s a mutual endeavour. It involves investing in your suppliers’ growth and capabilities, which, in turn, enhances your own. Encourage your suppliers to improve their processes, quality, and efficiency. Offer guidance, share best practices, and even provide training when necessary. As your suppliers become better, you benefit from more reliable deliveries and higher-quality products or services.
Consistency: The Reliability Factor
Consistency is a golden rule in supplier relationships. When you consistently meet your obligations, such as timely payments and predictable order volumes, it fosters trust. Reliability in your dealings instils confidence in your suppliers, making them more likely to prioritise your orders, even during periods of high demand or supply chain disruptions.
Feedback and Performance Metrics: Continuous Improvement
Establishing clear performance metrics and KPIs for your suppliers is pivotal. Regularly evaluate their performance and provide constructive feedback. This not only helps suppliers understand your expectations but also identifies areas for improvement. Open and honest feedback encourages continuous improvement, which benefits both parties. It’s a win-win situation that leads to stronger, more efficient relationships.
6 benefits of sound supplier relationship management
- Lower costs: As a percentage of revenue, the average company’s procurement spend is rising. For service companies, it sits around 30%; for manufacturers, 50%. That’s a big slice of the pie, and a big opportunity to lower costs. Suppliers who trust and value your partnership are more inclined to offer discounts, negotiate favourable pricing, or provide flexible payment terms. By reducing procurement expenses, these savings can directly impact your bottom line. Moreover, efficient collaboration with suppliers can minimise overhead costs associated with order processing, quality control, and dispute resolution, further enhancing your cost-efficiency and profitability.
- Cost Efficiency: Building strong supplier relationships often leads to significant cost savings. Suppliers who value your partnership are more likely to offer discounts, preferential pricing, or flexible payment terms. These financial advantages directly impact your business’s profitability, allowing you to allocate resources more efficiently and invest in other critical areas of growth.
- Reliability and Consistency: Trusted suppliers become reliable partners, ensuring on-time deliveries and maintaining product quality consistently. This reliability minimises disruptions in your operations, safeguarding your ability to meet customer demand promptly. It also reduces the need for extensive quality control measures, streamlining your supply chain management.
- Innovation and Collaboration: Robust supplier relationships encourage collaboration and foster innovation. Suppliers who understand your business can provide valuable insights, share market trends, and offer new solutions or technologies. This collaborative environment allows you to access fresh ideas and maintain a competitive edge by adapting to changing industry dynamics more effectively.
- Flexibility and Adaptability: Strong relationships often result in more flexible terms and conditions. Suppliers who value your partnership may be more accommodating in adjusting order quantities, specifications, or delivery schedules to align with your evolving needs. This flexibility enhances your agility in responding to market shifts and customer preferences, contributing to your overall competitiveness.
- Risk Mitigation and Stability: Suppliers who have a deep understanding of your business needs are more likely to collaborate with you on risk mitigation strategies. By proactively addressing potential challenges, such as supply chain disruptions or market fluctuations, these relationships contribute to the stability and resilience of your operations. This stability ensures that your business can weather uncertainties and continue delivering consistent value to customers.
The Long Term Perspective
Committing to long-term supplier relationships is like tending to a slow-cooking stew; it might take a while, but the flavour is worth it. The trust and reliability that develop over years translate into smoother interactions and cooperative problem-solving. Plus, there’s often some cost-saving magic that occurs over time, thanks to streamlined processes and favourable terms.
These enduring partnerships also open the door to innovation and collaboration, as you share insights and embark on joint ventures. When the going gets tough, your steadfast suppliers become your allies in risk mitigation, helping you weather the storm. In the end, it’s about securing a competitive advantage that tastes all the sweeter with age.
Develop the capability to achieve your supplier management goals
Procurement teams must recognise that cultivating strong supplier relationships is not just an inherent skill but a capability that can be honed and refined. Ongoing training and courses play a pivotal role in this process. These initiatives empower team members with the latest industry insights, negotiation tactics, and communication strategies. Continuous learning ensures that procurement professionals remain adaptable and well-prepared to navigate evolving market dynamics. It also exposes them to best practices in supplier relationship management, fostering a culture of excellence within the organisation.
This transition isn’t merely a tactical switch but a strategic stride towards engendering a collaborative ethos that lays the foundation for innovation, enhanced adaptability, and a sustainable competitive edge. By investing in training and education, procurement teams equip themselves with the tools and knowledge needed to foster and maintain robust supplier relationships, ultimately contributing to the overall success of the business.
Academy of Procurement is your capability driver
The Academy of Procurement has crafted a menu of training modules that delve into the intricacies of supplier relationship management. With a nod to real-world challenges, these modules cover everything from effective communication to conflict resolution – the nuts and bolts of building those strong supplier bonds. So, if you want your procurement team to be the chefs of supplier relationships, these courses are the secret ingredients to their success.