Building strong and enduring relationships with the people who matter most is a must for any business owner. Employees and customers are probably the people who leap most readily to mind when thought is given to key business relationships. However what should not be forgotten is how important it is to also include suppliers amongst your key stakeholders and to treat supplier relationships with the utmost care.
Particularly in this age of rising customer expectations, new technology advancements and the ever-increasing need to act with speed and agility, it’s never been more crucial to give supplier relationship management (SRM) special attention.
In years gone by it’s often been enough to seek out suppliers who can consistently deliver the right products and services on time and at the best prices. But everything is more complicated now. These days it’s the businesses that take a strategic approach to SRM that are best placed to reliably and cost-effectively meet customer demands, achieving healthy margins and gain a competitive edge.
Obviously the bigger and more multi-faceted your company is, the more complex your Supplier Relationship Management program will be. But even for small operations that rely on a modest number of suppliers it can be well worth the time and effort to set out and follow a SRM strategy.
So, what are the core principles of successful Supplier Relationship Management?
Choosing a Supplier Wisely
As noted above, there’s far more to choosing a supplier than price. While it’s unquestionably of benefit to pay no more than you have to for a given product or service, deciding on a supplier based on price alone can be risky.
In the selection phase there’s a number of questions that should be asked of each potential supplier. For example:
- How long have they been in business?
- Are they financially stable?
- Do they have the right experience and expertise in your areas of specialisation?
- Do they have references from businesses similar to yours?
- Do they have the capacity to deal with an increase in orders?
- Is there anything about the way they run their operation that could cause problems for you down the line?
If there’s one certainty in business, it’s that something will go wrong at some stage. By taking a thorough approach to supplier selection, you mitigate the chances that a problem with a supplier will create a problem for your business.
Your suppliers have their own business to run, but that doesn’t mean they have to remain completely detached from your business. Companies with the best supplier relationships are those that engage with their suppliers in a meaningful and impactful way. This can start with site visits where key supplier personnel get to know your business, its priorities and its processes so that they can see how their operations fit into yours and vice versa.
It’s really all about engagement. Ideally your efforts will result in your suppliers gaining a good understanding of the vision and goals that you have for your business and the people charged with bringing it all to life.
The payoff is when your suppliers need to think outside the box to get your needs met, and they will be able to do this easier when they know how the moving parts of your business fit together. Ideally your efforts will result in your suppliers having a clear idea of what you do and where you’re headed from a long-term strategic perspective.
Once you have a new supplier on board, be sure to communicate with them on a regular basis. Let them know what’s working, what’s not, and where things can be improved. By keeping your suppliers in the loop you can strengthen good relationships and repair relationships that have begun to wobble.
Also, no-one likes being the last to know. Through frequent communication you can keep on top of changes that are happening within your supplier organisations – changes that may impact on their product or service delivery.
Nobody likes dealing with businesses that are slow to pay and habitually nit-picky with invoices. A strong supplier-buyer relationship is based on trust, loyalty, expertise and reliability. Suppliers need to know they can trust you and your business to pay invoices on time and in full. Also, by developing a track record of payment reliability, you enhance your chances of negotiating more favourable terms with your suppliers in the future. And in the event that down the track you suffer a period of financial strain, your history of reliability should make your suppliers favourably disposed to allowing you some flexibility until you get on top of things once again.
The famed management consultant Peter Drucker used to say, ‘If you can’t measure it you can’t manage it‘, and that idiom certainly applies to supplier relationships. Measuring how well your suppliers are performing can be achieved more easily when you have a Service Level Agreement (SLA) in place with each of your major suppliers.
Typically covering a wide range of things including price, quality, payment terms, purchasing processes and delivery terms, a SLA document will set out everything you expect from your supplier. Your supplier’s agreement to your terms will establish the document as a contract between the two parties.
When it comes time to review your suppliers’ performance, the SLA will enable you to evaluate the business/supplier relationship in the most objective way possible. It will also prevent your suppliers becoming complacent and taking the relationship for granted. When suppliers know that they’re subjected to regular assessment, they’re more likely to stay on top of their game.
To Wrap Up…
A chain is only as strong as its weakest link, and a supply chain with weak links is a disaster waiting to happen. There’s nothing particularly magical about Supplier Relationship Management – it’s really just common sense dialled right up.
Choose your suppliers carefully, treat them as business partners, communicate with them regularly and evaluate them periodically. Follow these steps and you lay the groundwork for enduring customer satisfaction, a smoother workflow and greater financial prosperity. If you want more tips on optimising your business processes, check out this article.