How to make the most of your supplier relationships
Read time: 4 minutes
Developing good connections with suppliers—sometimes called supplier relationship management—is critical to business success.
“Businesses are increasingly relying on suppliers to help reduce costs, innovate, improve quality and reduce lead time,” says Ashay Gude, a BDC business consultant, who specializes in operational efficiency. “Good relationships with suppliers can provide a competitive advantage.”
In fact, the most successful Canadian entrepreneurs rank relationships with suppliers as their most important business relationships, according to a BDC survey of 1,000 Canadian small and medium-sized businesses.
Nearly one-third of the most successful firms said supplier relationships were critical to their success, in contrast to less than one-quarter of less successful companies.
Continuous effort needed
First-rate supplier relations require continuous, long-term effort, Gude says. He recommends you start by identifying the few vital suppliers that contribute to your company’s advantage over your competitors. “You have a vested interest in their success. Focus on building and maintaining partnerships with them.”
He divides the process into several steps:
- Evaluate all suppliers—Make sure they are the best ones for your business and that their products meet your needs. You want suppliers who are aligned with your strategy.
- 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.
- Collaborate on quality improvement, problem-solving and product development—Work together to improve capabilities and adopt best practices on both sides.
- Measure performance continually—Have structured ongoing discussions with your key suppliers about how to improve.
Ultimately, the idea is to work together as partners so both sides prosper, Gude says. “Sometimes companies focus just on the short term and only demand cost reductions from suppliers, rather than thinking strategically. That doesn’t help in the long run.”
In Langley, B.C., Franco Aquila is a strong proponent of this approach. Aquila is CEO of Iplayco, a company that makes and installs play structures.
Aquila tells an anecdote to illuminate his collaborative approach to relationships with Iplayco’s more than 200 suppliers. The company was in the process of delivering a play structure in Sweden when one of its suppliers realized the slides they’d made were the wrong size. The supplier agreed to work around the clock to redo the product and ship it by air freight in time for the playground opening.
Far from cutting the supplier loose over the error, Aquila helped cover the extra shipping costs and kept working with the company. “We don’t want to create hardship for our suppliers,” he says. “Everyone can make a mistake.”
Aquila never makes a promise to a customer without first consulting key suppliers and regularly tells suppliers what his firm is planning down the road. “They appreciate being fully aware of what to expect from us.”
Being kept in the loop about upcoming business means his suppliers don’t have to be constantly on the lookout for new contracts. In return, they provide preferential pricing.
Do’s and don’ts of supplier relationships
- DO—Take a long-term approach to supplier relationships. Commit to shared prosperity and mutual development. Help suppliers boost their technical and problem-solving capabilities.
- DO—Understand in detail how your key suppliers work. See how they operate, and learn their culture to ensure mutual trust and strong partnerships.
- 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.
- 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.
- 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.