It’s no secret that successful businesses are built on relationships. However, many organizations focus on developing and improving customer relationships, but overlook the supplier relationship. Developing beneficial relationships with suppliers is a key part of strategic sourcing.
Investing in the supplier relationship can improve outcomes for your business. This post will explore advice from procurement experts about how you can develop and maintain the mutually beneficial vendor relationships.
11 procurement experts share supplier relationship advice
1. Understand the real cost of procurement
“For significant spend areas, procurement teams at best-in-class companies are abandoning the outmoded practice of receiving multiple bids and selecting a supplier simply on price. Instead, they consider many other factors that affect the total cost of ownership. This makes good sense when you consider that acquisition costs account for only 25 to 40 percent of the total cost for most products and services. The balance (and majority) of the total comprises operating, training, maintenance, warehousing, environmental, quality, and transportation costs as well as the cost to salvage the product’s value later on.”
— Bob Engel, senior practice leader of supply chain management for Resources Global Professionals
2. Select the right supplier to build a relationship
“The days of selecting vendors on cost alone are over. There are several other considerations. One that is often overlooked is the cultural fit between the organizations.
“Some items to keep in mind when evaluating cultural compatibility include time orientation, organization structure, decision-making processes, rate of change, and the age of the workforce.”
— Lou Markstrom, co-author of Unleashing the Power of IT: Bringing People, Business, and Technology Together
3. Look for areas where a single supplier can benefit multiple departments
“Combining the supply requirements of different divisions can increase the corporation’s total buying clout. One international transportation company was buying three kinds of fuel separately: bunker oil for shipping, jet fuel for airfreight, and gasoline for trucks. Only after consolidating and combining these volumes at the corporate level could the company bring its true bargaining weight to bear.”
— Peter Kraljic, creator of the Kraljic Portfolio Purchasing Method
4. Define the relationship and put supplier KPIs in writing
“Incorporate appropriate service levels and metrics into agreements. A relationship based on a handshake is far more likely to encounter problems than one in which expectations are clearly established and agreed upon.”
— Dave Blanchard, speaker and author of Supply Chain Management Best Practices
5. Involve suppliers in strategic discussions
“If a vendor supplies a key part or service to your operation, invite that vendor to strategic meetings that involve the product they work with. Remember, you brought in the vendor because they could make the product or service better and/or cheaper than you could. They are the experts in that area, and you can tap into that expertise to gain a competitive edge.”
— James Bucki, director of computing technology at Genesee Community College
6. Get internal buy in from your suppliers
“Recognize that a supplier usually cannot be successful without internal support. The primary reason I see engagements fail is a lack of backing. For instance, abandoning the supplier after the contract is signed, leaving them to implement and manage their services without giving any direction on navigating client needs, or in driving the change necessary for an engagement to be successful.”
— Philip Ideson, Host of the Art of Procurement podcast
7. Evaluate suppliers’ performance regularly
“At Eaton, we use a supplier dashboard to understand cost, quality, and delivery performance as the key agenda items in our quarterly or annual business reviews with suppliers. These supplier dashboards also serve the basis for supplier negotiation in terms of pricing.”
— Muddassir Ahmed, Ph.D., divisional supply chain manager at Eaton
8. Create a system of rewards and penalties
“Sadly, even formal agreements can’t be made solely on the basis of trust. You should … incentivize supplier performance improvement and penalize them for falling below agreed standards.
“However, too many companies still weight the balance in favor of penalties, which merely support the maintenance of performance levels.
“Supplier performance management should be about raising standards, not just maintaining them. To that end, your supplier agreements should place equal emphasis on rewarding great performance as penalizing shortcomings.”
— Rob O’Byrne, founder of Logistics Bureau Group
9. Treat suppliers with respect
“The purpose of such relationships is to build an effective, long-term relationship. As such, buyers must communicate with the suppliers on the basis of an equal partnership. Threats, aggression, and negotiation stunts will likely undermine the degree of supplier trust into the relationship. Consider, rather, the supplier, as an extension of the internal organization and therefore subject to the professional respect afforded to co-workers.”
— Jonathan Webb, head of strategy research at Procurement Leaders
10. Keep supplier information easily accessible
“Having detailed, accurate and centralized supplier information is a foundational part of managing relationships with suppliers — from product scoping to payment processing. This information can include quotes, contracts, contact details, locations, remittance information, certifications, performance ratings, risk scores, capabilities, and category coverage. Tactically, collecting, verifying, cleansing, and managing supplier information can drive significant cost savings. Strategically, supplier information management can drive greater collaboration and innovation with enterprise suppliers.”
— Andrew Bartolini, founder and chief research officer at Ardent Partners
11. Use technology to simplify the SRM process
“The key to effective SRM [supplier relationship management] is having a system in place that makes it easy to view your suppliers and analyze all of the risk factors. Using SRM technology provides you with full and unparalleled visibility into your supplier base, giving you a detailed picture of what is impacting your supply chain and making it easy to mitigate the risk.”
— Mickey North Rizza, program vice president, enterprise applications and digital commerce at IDC
How we can help
RFP360’s end-to-end request for RFP management solution empowers organizations to streamline the RFP process so they can focus on selecting the right supplier and forming mutually beneficial relationships.
“RFP360 helps us automate and focus on core business. Now, we can categorize, search, and profile providers, which helps us understand who would be the most appropriate vendors to invite to a particular RFP,” said Mark Rieder, SVP of HR technologies and benefits administration at NFP. “We’re shortlisting faster, and we’re being a true partner to our vendors. It’s a win-win.”