How to make the most of your supplier relationships
Developing good connections with suppliers—sometimes called supplier relationship management—is critical to business success. This has become paramount as the supply chain challenges increase.
Businesses are increasingly relying on these key partners to help reduce costs, innovate, improve quality and reduce lead times. Maintaining good relationships with suppliers can provide a competitive advantage.
Relationship management: an ongoing effort
First-rate supplier relations require continuous, long-term effort, which starts with identifying the few vital suppliers that contribute to your company’s advantage over your competitors. Your success is tied to theirs. Focus on building and maintaining partnerships with them.
Managing supplier relationships
These four steps will help you build stronger relationships:
1. Evaluate all suppliers
Make sure the supplier is the best one for your business and that their products meet your needs.
This assessment can be done using the 10 Cs model, which identifies 10 criteria for evaluating suppliers:
- Competency: Does the company have the skills to deliver the services and products you want?
- Capacity: Can the supplier deliver on time and is it able to adjust?
- Commitment: Can it commit to meeting its deadlines and deliver the quality of products or services you expect?
- Control: What are its processes and quality control practices?
- Cash: Is the business financially sound and can it survive more difficult times?
- Cost: Are prices competitive?
- Consistency: what measures are in place to ensure that the product or service delivered is always of the desired quality?
- Culture: Does the supplier have a corporate culture that is similar to yours?
- Clean: Does the company meet or exceed your expectations of environmental and ethical standards in their sector?
- Communication: What are the company’s preferred means of communication and is there someone you can contact in more sensitive or urgent cases?
To check these criteria against potential suppliers, don’t hesitate to request proof, visit their facilities, or ask for written commitments. You can also request references and consult other companies that already do business with this supplier.
Also consider giving preference to local businesses. This will increase your chances of forging closer ties and make shipping easier if they need to provide products for you.
During this selection or evaluation process, consider informing your suppliers of your requirements and ensuring that they are aligned with your strategy. By choosing the right suppliers from the start, you put the odds in your favour to build better relationships.
2. Integrate key suppliers into your business
Learn how they operate, and make sure your systems work seamlessly with theirs in areas such as invoicing and order fulfillment.
For optimal integration, it is advisable to establish an onboarding process for suppliers. By learning more about their practices, you may have fewer surprises about security or governance, for example.
If you need to share important information with suppliers, it is also recommended to sign confidentiality clauses.
3. Collaborate on quality improvement, problem-solving and product development
Start working together to increase your respective capabilities and adopt best practices.
For instance, make sure you pay invoices on time. If you are sometimes late on your invoice payments, you should consider anticipating or automating them.
You can also integrate key suppliers into your strategy. To do this, start involving them in important business decisions. You will also be able to see what objectives you share and how your shared values can enable you to establish a collective strategy.
This type of behaviour will allow your supplier to establish a relationship of trust with you. Not only can this relationship provide you with some preferential treatment, but it could lead you to innovate. The supplier could share expertise or technologies that you
were not aware of. You will be able to achieve common goals and form a lasting partnership.
4. Measure performance continually
Have regular structured discussions to talk about performance. Schedule meetings with your supplier to discuss what is working well and what could be improved.
Make sure you have communication channels that allow you to share your assessment of giving them the opportunity to express themselves and share their vision of your relationship.
Many business owners aren’t aware of how to assess their supplier’s performance or don’t take the time to do so. However, it can be quite simple and quick to do.
The best way is to use a grid with specific criteria. Also use scores for each criterion (such as 1 to 5 based on the company’s performance). Take the time to at least describe how the performance is being rated.
With this process, you can compare current and past performances. You also show the supplier that your follow-ups are serious and systematic and that both effort and laxity are noticed.
Even if everything goes well with your partners, such exchanges can help reassure them about their services.
The end goal is to work in partnership for the benefit of both parties. Sometimes companies focus on the short term and simply ask for price reductions rather than use strategic thinking. This will not pay off in the long term.
Do’s and dont's of supplier relationships
1. DO – Commit to shared prosperity and mutual development. Help suppliers boost their technical and problem-solving capabilities.
2. DO – Understand exactly how your key suppliers work. See how they operate and learn their corporate culture to ensure mutual trust and strong partnerships.
3. DO – Periodically evaluate the performance of key suppliers with scorecards, and periodically scan the market for better and/or more cost-effective alternatives. While you want to nurture strong relationships with suppliers, you don’t want to become captive to them. An Inventory management software can help you track stock levels.
4. DON’T – Focus only on short-term goals, such as cost-cutting. Don’t insist on unreasonable payment terms or pressure suppliers to assume the cost and risk of holding the bulk of your inventory.
5. DON’T – Focus your efforts on all your suppliers. Save your special collaboration for only a handful of key strategic partners. Anything more is unsustainable.