Just a few years ago, supply chains were considered an outstanding organizational achievement, with global networks of high complexity to get goods, components and raw materials to where they were needed just-in-time. But when it came to building systems that squeezed the last ounce of efficiency out of every stage of the chain, it was always the suppliers who felt the pinch.
Today, it is clear that companies will need to redesign supply chain models from the ground up to ensure that global trade survives future crises like the one we are facing today. Digital transformation will play a central role in this process. It will enable companies to automate processes, increase efficiencies, and derive new value from deeper, more transparent relationships with their suppliers. But no amount of digital technology will be enough if it is not based on strong interpersonal relationships built on trust, transparency and a shared vision for long-term value creation.
The four steps to strong supplier relationships
The current supply chain crisis has many causes, but one that is often overlooked is the steady marginalization of suppliers in the procurement process. While there are many good examples of buyers who always put their supplier relationship at the center of their supply chain, too often they are pressured and marginalized.
Companies can make significant progress in building sustainable supply chains by strengthening their relationships with individual suppliers. The following four steps will help them do so.
1. Define the necessary goals and requirements
What do you need from potential suppliers? What goals do you hope to achieve? How will you measure whether your relationship is successful? It is essential that you find answers to questions like these, often referred to as supplier requirements, at the beginning of the partnership. This information needs to be available to both your internal and external suppliers, as it will allow potential suppliers to assess themselves and determine if they are a good fit for your organization. Strong, communicated supplier requirements are not only the first step to a good relationship, but set the bar for transparent communication and compliance over time.
2. Choose the right suppliers
It’s obvious, right? It should be, but often companies choose suppliers based solely on cost. However, there are many other factors that affect long-term relationships. These include quality, awards or well-known industry awards, recommendations, as well as ratings. This also includes due diligence, legal actions as well as checking the supplier’s reputation to ensure there are no problems later.
It is worth considering the use of Request for Proposals and Requests for Quotations. This is your opportunity to thoroughly vet potential suppliers to ensure they fit your company’s goals – and each other. So analyze supplier strengths and weaknesses, pay careful attention to the external environment, and consider any factors that could impact your relationship with the supplier. And don’t forget to examine any trends that could impact the longevity of your relationship.
3. Negotiate, negotiate, negotiate!
After you’ve decided on your preferred suppliers, it’s time to negotiate the terms of an effective partnership. This should include everything, whether it’s responsibilities, expectations, pricing or contract terms. Take the time to ensure that both parties gain benefits from the agreements and that both parties gain long-term value from the relationship. Once you have carefully crafted your requirements, it’s time to get your suppliers on board.
All relevant stakeholders from your supplier company and your own company should be present during this process. For example, if senior management or a specific department is responsible for your company’s contracts, you should include them in the conversation to gain additional insight and ideas on how to better leverage your supply chain.
4. Evaluate ongoing performance
Good relationships don’t end after the first meeting. This is true for good supplier relationships as well. If you’ve designed your selection, negotiation and supplier engagement requirements to be mutually beneficial, your relationships should theoretically be built to last. By continually evaluating them, you can ensure that they remain that way.
Are they meeting your goals and requirements? Do both parties see value in the relationship? Or have you found that your supplier is not delivering on their promises? Perhaps it makes sense to revisit your relationship with your supplier, but you can only do that with structured and consistent KPIs over time.
Bottom line for better supplier relationships
Smart companies never let a crisis go to waste. Today’s stalled supply chains are special and require radical solutions across the industry. If ever there was a time for the global supply chain to pull together, it’s in the midst of this seemingly endless pandemic. The old models of supplier relationships have failed, but we are just in time to change that. The first step must be to build much stronger bonds between buyers and suppliers so that everyone can move into the future stronger together.
Author: Uwe Stroh, Sales Director DACH & Eastern Europe bei Tradeshift
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