Improving Supplier Relationships
Introduction
Effective supplier relationship management is vital for a businesses health. Without a product to provide your customers your company is merely an idea. When supplier relationships aren’t healthy or maintained costs begin to creep and your profits erode. You lose predictability and challenges become exponentially harder to alleviate. Your confidence in the ability to deliver consistent product diminishes and your product roadmaps suffers as a result. But how do you know if your supplier relationships need work? In this article, I’ll sit in as your supplier relationship counselor, show you the signs indicating a need for improvement, and delve into critical components of supplier relationship management. By the end, you'll have some practical tips you can apply to your business and within your procurement teams.
Are We Ok?
What are some signs your supplier relationship is headed for the dumbs instead of happily ever after? Generally, attention is needed whenever you see signs of inefficiency or dissatisfaction from your organization or the supplier themselves. Specifically, here are five clear signs that your procurement processes requires improvement:
1. Consistent Quality Issues: Complaints are increasings, yield is changing. You find yourself sending material back or scraping.
2. Communication Problems: Suppliers aren’t providing answers or your lacking important information like tracking numbers, due dates and future disruptions.
3. Unaware: Your company is not familiar with the strengths or vision of your vendors. You do not have a sense of where you are valued within the suppliers book of business. You haven't discussed your goals recently.
4. You Hate Doing It: If you own a small business then you already know you have areas of strength and areas of weakness, or areas you find so boring and dull you’d rather ignore it. Owning a company or leading a team is a bit like owning a house. You have those areas you aren't good at, chewing up too much of your time and make you frustrated. I know I am not touching anything plumbing related!
5. Limited Innovation: Suppliers are more than just transaction partners; they can be valuable sources of innovation. Your suppliers should be contributing new ideas or improvements, and have solutions or ideas when you ask for help on open issues.
4 Critical Components of a Supplier Relationship
I recommend prioritizing these areas when developing your supplier relationships.
Compatibility: Your objectives need to align with the suppliers capabilities. If you run your business on tight monthly cash flow and cannot afford the holding costs for large purchased inventory, you will need vendors with short lead times. Or, if you own a company whose purpose is driven by sustainability and impact on the planet then your suppliers are going to share a similar vision, offering products that are a good fit for you. They are going to be interested in cutting edge sustainable products and share those developments with you because a big part of determining compatibility is excellent….
Communication: In any relationship communication is key. Life reminds of this often. Treat suppliers as partners, involving them in strategic discussions and decision-making processes. Tell them your plan and ask how they can best utilize your forecast. Inform them of your priorities and what is important to you. Ask them the same and listen to their response. You will be surprised at how many vendors want to collaborate or who can better serve you if you just tell them your big audacious goals.
Caliber: I’m gonna be honest that QUALITY is what we are talking about here but I'll be darned if I miss this opportunity for some heavy alliteration. Your customers expect a standard from your products and it's your job to know what that is. Your suppliers need to be able to meet your expectations and deliver against your quality standard. It's important this is realistic and the supplier consistently proves their ability to deliver against this standard at the agreed upon price. Spoiler alert, a practical application tip is to make sure your quality standards are well documented and well communicated.
Cost: Your company has a strategy for its margin, and you need to be realistic about what suppliers can deliver against that. Maintaining vendor relationships isn’t always about buying the cheapest but you should be looking for the best value. It's critical here to understand the competition and the total market price. The research may prove that you can find it cheaper, albeit with a partner offering far less compatibility, communication, and caliber of product. The extra cost could be worth it and can be made up in sales, or customer loyalty, etc.
Work On It! 3 Things to Try
You understand the importance of supplier relationships and you have clear signs yours is need for work. Here are some practical steps you can take that will impact collective satisfaction.
Evaluate Current Relationships: Review your existing supplier relationships to identify a grade for each of compatibility, communication, caliber and cost. You can formalize this by going as far as implementing vendor scorecards. This can lead to segmenting as A, B C level vendors which helps you clearly decipher when and how many backup vendors you should have. This approach can even serve as a way to communicate pain points with vendors and open the conversation for improvement.
Set Clear Expectations: Take an opportunity to reset. Acknowledge the importance of the relationship and ask to meet regarding future business. Take the time to clearly communicate your expectations, quality standards, goals and objectives. Ask about theirs and ensure there is an appropriate degree of alignment. Share company org charts and define the channels and methods of communication. Suppliers integrated at multiple levels of the organization greatly reduces overall mistakes time wasted on project direction.
Be Nice: Repeat after me: “Suppliers are people too”. Often we get caught up in the customer dynamic of paying for goods and expecting the end of the transaction. This can translate to cold approaches within the supply chain. The simple act of remembering there is human trying their best on the other end of your exchange is extremely powerful. Empower your teams to think in this manner and you will see real impact in your vendor (and team) relationships. Thank vendors when they exceed expectations and reward excellence with future business and referrals.
Summary
My suggestion is to take a customer-centric approach with your vendors, suppliers and overall supply chain. I advise you to lean into the relationship aspect of your supplier relationship management. By recognizing the signs that your procurement needs improvement and taking tangible steps to course correct, you can create better, more mutually beneficial partnerships. Effective supplier relationship management not only enhances your immediate bottom line but also contributes to a more sustainable and competitive business model for you in the future.
Leave comments or get in contact with me if you would like to know more. If you need help, I can implement practices that will result in improved supplier relationships.