I have talked a lot about supply chain excellence and the importance of achieving resiliency and antifragility. Yet there is one crucial element that cannot be overlooked if we are to get to that point: building strong supplier relationships.
Suppliers are not transactional; they are partners in your business. And building strong supplier relationships can help ensure that when inevitable disruptions do happen, you have people committed to having your back.
The Shift in Mindset from Transactional to Partner
Developing and nurturing relationships with suppliers requires a shift in mindset for most of us because in many cases, the supplier relationship has largely been transactional: I need, you supply, I buy. There’s no strategy there, no long-term partnership. You’re just placing an order. So, when things go awry, there’s no relationship to fall back on, to help you navigate complications.
If you focus instead on building relationships with suppliers – even if the short-term costs are higher – to achieve a long-term strategy that keeps you in business, it’s worth it. And you can’t just have one favorite go-to supplier either. You need to have a couple of backups.
Communication Is Key to Supplier Relationship Building
How does someone go from transactional to partner? You talk. You get to know each other. You start building trust and developing an understanding between you and your suppliers by regularly sharing information, discussing expectations, providing timely feedback, and discussing goals and how you can mutually benefit from a strengthened relationship.
Communication Drives Collaboration
Once we no longer treat suppliers as mere transactional entities and actually have conversations to enrich our understanding of one another, we can then aim to foster a collaborative and mutually beneficial relationship. Involve your suppliers in your decision-making process. Seek their input. Let them share their perspectives and try to empathize with their challenges. Efforts to collaborate can build a strong foundation for a long-term partnership.
Learn and Grow Together
Supplier performance reviews should not be an antagonistic experience. By evaluating performance and providing feedback, your supply partners have the opportunity to continue improving.
Why Do Strong Supplier Relationships Even Matter?
When we live in an environment where market conditions and customer demands are constantly evolving, the ability to adapt and respond quickly is a key differentiator. We have all experienced breakdowns in supply chain planning and management. So often, those breakdowns are out of our control – as are the solutions. When things do go wrong, a supplier can be another finger in the dike to prevent a breaking dam.
Maintaining a healthy and reliable supply chain can impact overall operations, profitability, and competitive advantage. Robust supplier relationships can provide businesses with the flexibility and agility they need to navigate the ever-growing list of disruptions with which they are often faced. At the end of the day, it’s so much better for your business, your customers, and your bottom line if your suppliers are invested in your success.
Benefits of Building Strong Supplier Relationships
Supply chain excellence is defined by consistency, reliability, and trust. Building strong supplier relationships helps you achieve supply chain excellence. When your suppliers are invested in your success, they are more likely to prioritize order fulfillment, maintain high-quality standards, and proactively address any issues that may arise.
By fostering close collaboration with suppliers, businesses have more opportunities to promote cost savings and improve efficiency. Imagine working together to identify areas for process optimization, joint cost-saving initiatives, and more-favorable terms. The results? Reduced procurement costs, improved inventory management, and enhanced overall operational efficiency.
When suppliers are actively engaged with a business’s growth, they can provide valuable insights, share industry knowledge, and collaborate on new product or service developments. This collaborative approach can result in the creation of innovative solutions that meet the evolving needs of customers and help businesses stay ahead of the competition.
Common Challenges to Strengthening Supplier Relationships
There are challenges to maintaining strong supplier relationships. Many times, a power differential exists between a large company capable of dictating terms and a small supplier that relies on the company for much of its revenue. In such a case, the company needs to recognize the differential in power and the value that the supplier offers. Concessions can go a long way toward fostering the relationship and preventing the supplier from jumping ship as soon as a new competitor comes along offering better terms.
Lack of communication – especially clear and transparent information about expectations from both sides – can destroy a supplier relationship. Establish agreed-upon KPIs, SLAs, and contracts that make it easier for both parties. Developing a relationship doesn’t mean throwing due diligence out the window.
Selecting the Right Suppliers
Let’s face it: Sometimes you don’t really have a choice of who your supplier is, depending on the specificity of your need. But selecting the right supplier is crucial for having the ability to build a strong relationship.
As you conduct a thorough supplier assessment, to include site visits; a review of financial statements; and an evaluation of the supplier’s production capabilities, quality control systems, and sustainability practices, you will gain a deeper understanding of the supplier’s capabilities and reliability.
But even more important than vetting a supplier is the priority shift when selecting suppliers based on long-term partnership viability over short-term transactional cost savings. Building long-term relationships leads to greater stability, better communication, and more opportunities for joint problem-solving and innovation.
The Long-Term Benefits of Building Strong Supplier Relationships
Developing and nurturing strong supplier relationships should be a strategic imperative for businesses of all sizes and industries. The benefits of strong supplier relationships extend far beyond the immediate operational and financial gains. These relationships offer your business a competitive advantage, opportunities to develop innovative solutions in partnership with your supplier, and the flexibility to adapt to changing market conditions without sacrificing your ability to deliver superior value to your customers.
Read more about developing stronger supplier relationships through strategic sourcing.
Ultimately, your investment in supplier relationships is an investment in the long-term viability and success of your business. By prioritizing these relationships and continuously working to strengthen them, your business can build a solid foundation for growth, innovation, and competitive differentiation. We can help. Get in touch.
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