Relationships are what define business success. Each business stands in the centre of a chain of relations between suppliers and customers, receiving raw materials, goods, and services at one end and adding value to create profit on the other.
So much is made of a company’s customer side, about how to maintain and nurture connections through sales, marketing and customer care to maximize revenue.
CRM and the software that accompanies the practice is far more embedded and mature than the supply chain management or supplier relationship management software equivalent.
However, the supplier side is just as critical. At its most basic level, a business requires suppliers to provide resources for the products or services it sells, as well as resources to run the company itself.
The main benefit of having strong, reciprocal supplier relationships is getting more value for your company. The better you know your suppliers and they know you, the more likely you are to receive personalized service, discounted prices, and uniquely beneficial terms. Your supply chain will become more efficient, cost-effective, and productive as a result.
Building the Foundation for Effective Supplier Relationships
Thinking about procurement in terms other than the technicalities of purchase agreements and contracts is necessary for building solid relationships with suppliers. The emphasis on how you connect with suppliers differs from supply chain management’s logistical focus.
It’s rarely as simple as signing a contract and sitting back while a process takes care of itself. People management and the additional value that human elements of business may bring to your operation are at the heart of supplier management. Keeping this side of things functioning smoothly will promise that both parties work swiftly to fix problems, explore ways to enhance processes, and support each other in reaping the commercial benefits of the partnership. Great supplier management is built on the mantra that “your success is my success.”
Seeing the supplier relationship challenge as one of people management is key, and hence the foundation of strong relationships necessitates a specific mindset.
Here are the basic elements for improving supplier relationships:
Any successful business relationship relies on effective, transparent two-way communication. You won’t be able to understand enough about your suppliers to establish mutually beneficial agreements if you don’t communicate effectively with them.
Mutual respect and readiness to accept the requirements and perspectives of the other party make it easier for suppliers and buyers to work together in a way that maximizes the interests of both parties.
Being open and honest with one another is an important element of strong relationship building. Sharing information and being open about intent and plans enhances the possibility of establishing mutually beneficial agreements.
Business relationships break down when one side believes they are not getting a fair share of the deal. To make a “You scratch my back” strategy work for everyone involved, make sure all benefits are distributed evenly down the line.
All of the aforementioned lead to the building of trust. Trust is the bond that holds a successful relationship together, giving suppliers and consumers the confidence to seek out new ways to collaborate and solve problems together.
To make a relationship thrive, you must be willing to reconfigure your working methods to accommodate the other side. It is extremely unusual for two organizations to reach an immediate working panacea. Strong relationships need time and both sides’ willingness to listen, adapt and accept innovation as a way of development.
Choosing the Best Supplier
We aren’t all compatible as people, and businesses (obviously made of other humans!) are no exception to this rule. Even if you commit to excellent communication, transparency, and fairness when entering a partnership, if the supplier does not, the relation will almost certainly fail. As the saying goes – people buy people and it’s incredibly important to choose the right people that work well within your business relationships.
Businesses frequently select suppliers based mostly on price, and they appear ready to cut and adjust to achieve the greatest price for the goods or service. However, this is rarely the most effective method of doing things because seeking and negotiating contracts with new suppliers incurs additional costs. Furthermore, the long-term cost of reputational harm as a result of poor quality control and order fulfilment might render any initial cost savings inconsequential.
When there is a small number of suppliers in the market or the offering is a niche, always try to build longer, stronger relationships. This is a better deal than just monitoring the contract turnover. So, to get the most out of your supplier relationships, look for quality and reliability, value for money, and, most importantly, great service and clear communication from the start.
Secrets for Developing Stronger Relationships
Supplier relationships should be seen as a two-way path. From your point of view, you want the assurance that your goods or services will turn up when you need them, as well as the flexibility to adapt to changes in the market. You want high-quality service so that your company is prioritized when it needs to be, as well as the assurance that you’re receiving the finest commercial deal.
Suppliers, for their part, seek consistent, dependable clients since recurring orders provide them with stability. Variations in order size and regularity might cause them greater problems, but as long as adequate notice is given, they will be willing to accommodate valued clients.
Strong relationships need both parties to realize these requirements and work together to ensure that they receive what they demand. Here are some suggestions for accomplishing that objective.
Late payments are disastrous for any business. Not getting payments you’re owed when you’re supposed to can have a big impact on cash flow and leave a company vulnerable financially. Paying late erodes trustworthiness and, as a result, reduces the chance of long-term partnerships.
It’s in your best interests to support your suppliers in maintaining a steady cash flow. They may not be able to replace inventories from their suppliers if you do not pay on time. If you have an unusual requirement, your supplier may then consequentially not be able to serve you.
Above all, paying on time is a sign of deference.
Make flexible payment arrangements
Every company has its preferred payment plans. When these conflict — for example, a customer insists on 90-day payments while a supplier wants it done in a fortnight – the relationship is severely strained.
You’ll have your reasons for payment terms, but keep in mind that your supplier will have his or her own. Be honest about your motivations, respect theirs, and work together to find a solution. Payment flexibility may also refer to how you pay. If you place a large, unexpected order with a short turnaround time, the supplier may want cash payment in advance. Being able to reach an agreement once again demonstrates that you are willing to be fair when it comes to satisfying each other’s demands.
Have Credit on Hand
Following on from the previous point, getting pre-approved credit on hand is a useful contingency to have in order if you need your suppliers to be more flexible. It enables you to absorb part of the risk associated with placing unexpected purchases, allowing your supplier to keep up with your requirements. It also gives you a strong bargaining stance because you have the funds to back up your demands.
Provide sufficient notice
Because demand cannot always be controlled, there will be occasions when you ‘re forced to place last-minute orders. However, even with out-of-the-ordinary requests, try to give your supplier as much notice as possible. This is about treating your supplier with respect and knowing that you will not be their only client; they have other commitments to fulfil.
Review terms regularly
Holding regular talks regarding business agreements to ensure that both parties are content and that everything is operating as it should is an important element of successful relationships. This is also a chance for all parties to seek ways to improve things.
The Advantages of Effective Supplier Relationship Management
Both sides gain from cost and risk reductions when good relationships with suppliers are established.
Businesses that know one other well can refine their mutual processes to make them run more effectively, and strong relationships tend to provide immediate benefits like preferred discounts. Because frequent, recurrent commerce between two parties is inherently stable, the risk is reduced significantly.
In a broader sense, the advantages of excellent supplier relationship management are as follows:
Consolidation of Supply Chains
Relying on a lesser number of reliable suppliers reduces complexity, increases consistency and eliminates the possibility of redundancy – which can negatively affect your supplier relationship.
Investing in long-term agreements balances cost inputs with relationship values. There is always a hidden cost of continuously seeking new suppliers in the search for greater value to the logistical expenses of a large supply chain.
Simpler strategic supply chains minimize the possibility of waste and failure, but excellent supplier relationships also allow firms to adapt to each other’s needs, resulting in better efficiency.
It is easier to resolve disputes when there are good working relationships and open communication.
Effective supplier relationship management is important because it allows you to get the most out of a key component of your corporate network. For every company, the better it gets at developing supply chain relationships, the more commercial rewards it reaps.
Businesses should break the traditional mould of fixed, rigid, and even restricted procurement processes by viewing suppliers as essential strategic partners with a shared stake in their overall objectives. This way, they will start to identify ways to provide mutual value.
If, on the other hand, companies recognize that supply partners have their own requirements and objectives, they can communicate from a place of reciprocated understanding and over time develop together innovative, customized services that reduce costs, improve productivity, and ultimately increase profitability for both parties.