Having great relationships with your supply chain providers has never been more important. They’re key to unlocking efficiency and assessing any weaknesses within the chain, but ultimately, they can drive cost savings and produce a more positive and seamless experience for everyone involved.
In this blog, we'll explore how building these great relationships from the start can be invaluable, especially if your business faces challenges further down the line. We’ll take a look at the different types of relationships organisations can have with each other, as well as practical tips on how your business can communicate better throughout the supply chain.
Jump to:
● What are the different types of supply chain relationships?
● What is Supplier Development in procurement?
● Why is supplier relationship important?
● How can businesses manage supplier relationships?
● Reviewing your supply chain structures
What are the different types of supply chain relationships?
There’s no one-size-fits-all approach to how organisations interact with other businesses. One idea might work well for a multinational organisation, but it won’t necessarily work for a small or medium-sized company.
Here are some of the different ways to manage relationships:
1. Partnerships
Forging a partnership with an organisation is considered one of the best ways of building long-lasting, mutually beneficial relationships. For this to work, there has to be a high level of trust, as sensitive information is often shared by both sides to make the partnership work–NDAs are always vital in ensuring that the foundations of trust are set in stone. As part of a partnership, you will want to use Supplier Development, working one-on-one, to make sure you’re both getting the most out of the agreement.
2. Arm’s length
This is the opposite of a partnership and is a purely transactional relationship between parties. You will choose a business to supply you, and they will provide the products you need. Little information will be shared, and there is no obligation for you to use their services for future orders.
3. Just in time
Useful in industries that don’t want to hold excess products unnecessarily, this involves a relationship where suppliers deliver goods and services to an organisation “just in time”. It’s mostly used in manufacturing industries, like car making, fast fashion and technology.
What is Supplier Development in procurement?
Supplier Development is working side by side with your partners to improve their performance. It should be a two-way relationship, with both parties encouraged to consider potential improvements and alternatives to get the best out of them.
Some common examples of Supplier Development include:
1. Training
Consider what training and workshops you can provide to supplier partners, particularly in the early days of a relationship when upskilling may be required.
2. Regular reviews
Performance reviews should be encouraged. A monthly or bi-weekly meeting with suppliers to run through KPIs will be an invaluable opportunity for feedback, collaboration and improvement.
3. Infrastructure sharing
Consider providing your suppliers with access to your tools or systems. This will encourage efficiency and allow information to be supplied in real-time. It also allows you to maintain compliance by spotting potential issues sooner.
4. Process refinement
By working with suppliers, you can look to refine processes which means you can understand whether the current systems are too time-consuming or aren’t achieving the best results.
Supplier Development shouldn’t be seen as something transactional. Instead, see it as an opportunity for all businesses within the chain to work together.
Why are supplier relationships important?
Companies that focus on open and transparent partnerships with their suppliers are always going to have a competitive edge, especially as procurement becomes ever more complex.
So, maintaining those strong relationships with your suppliers will have a number of advantages to your business, including:
1. Quality enhancement
Open communication with procurement partners from day one means you can check on the quality of goods and services regularly. Working together, both parties can ensure product consistency, and it also means you can advise from the very beginning what you expect.
2. Efficiency and business insights
As your relationship develops, parties gain experience of how each organisation works, resulting in the sharing of business insights. This can make the supply chain more efficient, as well giving you an understanding of any potential challenges.
3. Potential for cost savings
Over time you’ll develop more leverage when it comes to negotiating and renegotiating contracts. Suppliers appreciating a good relationship are more likely to offer discounts and savings, and will usually provide a more competitive price for their goods and services.
4. Flexibility
Through creating trusted relationships, suppliers within a chain usually offer more flexibility when you need it. For example: you urgently need your supplier to provide you with a product within 48 hours, rather than the usual 72 hours. A close relationship means they’ll be more inclined to fulfil the order.
How can businesses manage supplier relationships?
It’s important to continually evaluate performance so that you can understand what value suppliers bring to the table. Consider creating a specific department or team, whose sole focus is to handle relationships within the supply chain. This allows a clear line of communication between both parties and encourages the free sharing of vital information. Over time, you’ll be able to understand how other organisations within the supply chain operate, and it also encourages transparency.
No supply chain is foolproof, but any early discussions with suppliers are an opportunity to understand sector-specific issues that might come up. As part of this, study their business setup. Consider who they have carried out work for previously, as well as whether there is a risk of product or service scarcity. You should also think about how often they outsource or rely on third parties, which would make the chain more complex and riskier.
KPIs are also a key procurement solution, and it is recommended that all parties set objectives together from day one. This allows organisations to benchmark productivity against targets delivered, and performance must be monitored regularly. It’s also worth this being communicated regularly with suppliers.
Reviewing your supply chain structures
To maintain relationships, consider having your supplier relationship processes reviewed externally. We help other companies, just like you, in providing supply chain partner support through our Supplier and Customer Relationship Managers.
We can also assist you with your wider procurement strategy, including assessing your current approach to procurement.
Find out more about the procurement services and solutions we offer.