Supplier relationship strategies: 7 ways to strengthen vendor relationships and why it matters
By: Jul Domingo
Your suppliers—how well do you know them?
Perhaps you can identify their names, products, and some of their key personnel. But can you describe their supply chain dynamics, risk management strategies, and performance in a nutshell?
How much you know about your suppliers says a lot about your relationships with them. According to Deloitte, 70% of leaders believed they had good supplier risk visibility. But only 26% of them could predict risks within their supplier base.
These findings should serve as a wake-up call to enhance supplier relationship strategies. Develop a competitive edge by understanding and managing your suppliers better. Doing so can control threats, inspire long-term collaborations, and enhance your performance.
Here are the best practices to get you started.
7 supplier relationship strategies to manage and nurture resilient suppliers
Long-term supplier partnerships require time and effort on both ends. These supplier relationship strategies will guide and equip you through the entire process.
- Draft specific, clear, professional contract agreements
- Plan your future with suppliers in mind
- Pay supplier invoices on time
- Build open, two-way communication
- Deploy the best technology for the job
- Focus on your suppliers’ perceived value
- Form and train your SRM team
1. Draft specific, clear, professional contract agreements
Managing strategic supplier relationships involves contract management. Your partnership is governed by the written documents you signed. A fair, well-documented contract lays the groundwork for building transparent supplier relationships.
Unlike verbal agreements, it offers solid proof in case of disputes.
Make sure to include all expectations and requirements when drafting one. You can specify the item or service description, price, payment, delivery terms, and warranty period.
Instead of using blanket purchase orders, place orders on a case-by-case basis. A blanket PO is a long-term agreement wherein suppliers agree to send you products regularly for a definite period. You’ll pay for it in fixed monthly installments.
These POs are vague contracts that need a lot of reconciliation on your end. Drafting a regular can save both parties from unnoticed errors over time.
Well-written contracts support supplier relationship strategies. They provide a framework to improve future contracts and protect both parties’ interests.
2. Plan your future with suppliers in mind
Treat your long-term suppliers as honorary business partners. You need them; they need you. The stronger the relationship, the more you can provide high-quality products to customers.
And the opposite is true if you always switch from one supplier to another.
Long-term partnership accounts for many companies (75.3%) that don’t rely on their business continuity plan alone–and this extends to their suppliers.
Knowing how your suppliers would react in a crisis (and vice versa) makes it easier to devise strategies for the fastest recovery.
Share your Business Continuity Plans with your supplier. The vendor’s business continuity plan should align with yours. Evaluate if it includes all the essential elements, including relocation plans, remote access potential, and disaster/pandemic recovery plans.
Aside from BC arrangements, forecast tools are useful for establishing long-term relationships.
Let’s say you forecast higher demand for the next year. You can share your insights with your suppliers, building long-term relationships. As a bonus, there’s a surprise benefit: better deals.
Suppliers are more likely to offer better discounts if there’s a promise of continued partnership. It’s the core of Inventoro. Our forecasts and order proposals can put you in a stronger position during negotiations.
Weigh the relationship and confidentiality before sharing any plans or information. Focus your supplier relationship strategies only on the key suppliers you trust the most.
3. Pay supplier invoices on time
As a business owner, you understand the stress of late payments.
Overdue payments can deplete your cash flow and limit your operations. That’s exactly why suppliers won’t hesitate to cut ties with you if you take ages to pay their invoices.
Make good payment habits a priority in your supplier relationship strategies. Research proved that timely payments—not bloated payables— will benefit your partnership.
Develop a good payment practice by keeping tabs on open invoices and the payment system. Is the system flexible enough to cater to the payment terms agreed upon with suppliers?
If you lack the time or manpower, your bank and third-party processors (such as Chargebee) offer ways to automate recurring payments.
Of course, no matter how diligent you are in settling all your payables, late payments can still occur. Payment delays are fine, so long as you inform suppliers in advance and provide an explanation.
Getting your suppliers’ bills paid on time (or at the very least with a delay notice) minimizes conflicts. It also demonstrates your commitment to your vendor.
4. Build open, two-way communication
Without proper communication, there’s no chance of building a meaningful relationship.
Streamlining communication in supplier relationships is therefore crucial. Both parties can benefit from reducing inaccurate orders and business interruptions.
Once you have an easy-to-use messaging platform, keep the communication open and two-way. Update suppliers with your plans and strategies. Ask for feedback. And above all, be aware of potential cultural differences to avoid misinterpretations.
Westerners, for instance, value low-context culture (i.e., direct and precise communication). They may reveal all details during the first-time meeting. In general, Asians prefer getting to know each other first and assessing their potential. To avoid bias or ambiguity, don’t generalize or assume. Ask the right questions instead.
Effective communication goes a long way. Inspire long-term supplier collaborations by improving your communication strategies.
5. Deploy the best technology for the job
Do you know that 55.6% of companies use technology to analyze and report on supply chain disruptions? Technology solutions optimize supplier relationships from end-to-end visibility to accurate supplier data.
But first, you must assess your technology needs and look for a service provider that can grow with you.
The first tech tool to consider is supplier management software. Platforms like SAP Ariba and Kissflow Procurement Cloud can keep track of your growing list of vendors. They can also automate releasing POs, tracking deliveries, and paying invoices.
Ensure your SRM software measures supplier performance to get the most out of your investment. It can help you identify and get rid of unreliable suppliers early on. A built-in communication tool and order status updates provide additional convenience.
Next, investing in inventory software allows you to drive supplier collaborations. Accurate forecasts can serve you well when negotiating. But some tools like Inventoro also support smart replenishments and automated order lists. These reports can be customized according to the supplier’s requirements.
Technology is evolving. So build a strategy that keeps pace with these changes. And the first step is choosing the right tools.
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6. Focus on your suppliers’ perceived value
Price is the tip of the iceberg, so the cheapest cost isn’t always a win-win.
Instead of focusing on just price, you should consider what your current suppliers offer. Take into account added value and non-monetary perks rather than the list price alone.
Imagine this: You come across a new vendor offering cheaper prices than your primary supplier. So you ditch the latter without forethought. In this tailspin, you notice customers start leaving as you chase low prices.
How come? Whenever you switch suppliers, your product quality suffers.
Different suppliers = inconsistent product quality.
This is why it’s imperative to understand the perceived value of your suppliers. Look at the price, but assess the convenience and perks that come with it.
7. Form and train your SRM team
Whether you have a team of five or work with an army of 500 employees, they hold a lot of importance to your supplier relationship strategies.
Adopting the six strategies outlined above is the first step, but you cannot implement them on your own. To achieve your SRM objectives, create an SRM team.
Prepare a documented process to navigate your team through the ins and outs of supplier management. These should include the terms and agreements with suppliers, flowcharts, and relevant SOPs.
Consider offering SRM training to improve their diagnostic and decision-making skills. This will ensure that they’re qualified to foster supplier relationships.
Following these supplier management practices can elevate your company to new heights. But, before we get into its advantages, let’s first define SRM.
What is Supplier Relationship Management (SRM)?
Supplier relationship management is a process of strategizing your connections with third-party vendors. SRM evaluates how well each vendor contributes to your success. These insights foster supply chain relationships where you can get more for less.
The main purpose of SRM
Peter Kraljic coined the term SRM in his classic work Purchasing Must Become Supply Management in 1983. He proposed segmenting suppliers based on risk and profitability to address supply issues. This framework would inspire professionals to develop modern supplier relationship strategies to:
- Build strategic relationships. A strategic relationship begins with identifying and managing critical suppliers. For example, farmers are more important to a restaurant than kitchenware suppliers. It is therefore more efficient to cultivate relationships with the former than the latter.
- Form risk reduction plans. Supply disruptions due to natural disasters and other supplier risks are inevitable. Mitigate these risks by monitoring supplier performance and preparing contingency plans. For instance, you can compile a list of backup suppliers to contact if a primary vendor fails to deliver.
- Nurture key suppliers. After defining supplier relationships, sustaining strategies for long-term growth is your next step. You can collaborate to develop innovative new products or co-market your products together. Boosting sales and expanding your reach will be easier this way.
SRM is a continuous process of learning and implementing these key strategies. Its economic benefits don’t happen overnight. But it can improve your procurement process and action plan in the long run. So, let’s go over them in full detail.
Why managing supplier relationships matters
Supplier relationship strategies give birth to robust and strategic partnerships down the road. Be consistent with your SRM efforts to reap such benefits:
- Higher competitive advantage. Partnering with strategic alliance suppliers can help you outperform your competitors. Companies that do so have 2x higher profits than their industry peers. Your bottom line increases as you reduce availability issues and negotiate fresh deals.
- Reduced supply chain costs. Shipping disruptions, late delivery, and sudden shortages can cost your business a lot. By joining forces with suppliers, you can reduce inefficiencies and unnecessary expenses. About 88% of firms exceeded their cost-saving targets through this.
- Better business performance. It’s easier to meet customer needs when you control supply risks. Dedicated suppliers can still help you fulfill orders if there’s a supply shortage. These improved service levels from successful collaborations lead to profitable and sustainable performance.
Supplier relationships are vital to a company’s success. An effective SRM yields cost reductions and opportunities for you and your suppliers.
Bolster supplier relationships with Inventoro
The supply chain is volatile. Having resilient and reliable suppliers is indispensable. They can help your business thrive amid uncertainties while also providing long-term opportunities.
Don’t let inventory inefficiencies undermine your solid SRM foundations. Use a tool like Inventoro to handle your purchase orders, replenishments, and forecasts. This will help you establish rapport and make better business decisions.
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