Almost every company, whether it’s product- or service-oriented, is dependent on suppliers.
Many businesses often take their suppliers for granted and prefer to focus on fostering customer loyalty. However, a good relationship with your suppliers is equally important as one with your customers. Suppliers can ‘make or break’ your business. That’s why supplier relationship management (SRM) is essential to every company’s success.
Adapting a more strategic approach to supplier management can have immense long-term benefits for companies.
Here are 4 key benefits of taking care of your suppliers:
The first thing to point out is that suppliers have the ability to give their key customers certain advantages over their competitors. For instance, these can be regarding their pricing, quality, reliability, technological breakthroughs and knowledge of industry trends.
Research shows that better supplier relationships can lead to higher profit margins. For example, consider the case of Chrysler, the car company. In the end, Chrysler lost an estimated $24 billion income as a result of poor supplier relationships between 2000 – 2011, due to their uncertain ownership.
Consequently, actively looking after your suppliers can help you to cut procurement costs by:
- Avoiding high initial set-up/negotiation costs
- You’ll avoid the costs linked with finding new vendors by not switching suppliers as often.
- Reducing miscommunication and failures
- As a result of maintaining transparency, you’ll be more likely to understand each other’s needs and work collaboratively to solve any issues.
- Helping you to stand out
- A supplier is more likely to reward good customers with better pricing, early offers and discounts.
Goods and services provided by your suppliers can positively or negatively affect the quality of your product. Higher quality products and services increase customer satisfaction, decrease rejects and help to minimise costs associated with replacements. For this reason, it’s important that your supplier is consistent with the quality of their products.
Moreover, if you aren’t looking after your suppliers, you increase your risk of dropping down their list of priorities. This can result in late or incorrect deliveries. Being let down this way can result in you shorting your customers, which can result in you losing money, customers or both. That’s why, when you find good and reliable suppliers, you should treat them well and be loyal – because they are essential to your business’s good health and growth.
If you are a manufacturer, suppliers can make significant contributions to your new product development. Good suppliers tend be experts in their fields and they’re constantly working to be on the cutting edge of innovation for their products. This makes them much more likely to understand your needs. They could even help you to shape your new idea into a great product.
Even if you buy to resell, innovative suppliers will be able to give you an advantage over your competitors. Why is this? Well, building good rapport with your supplier makes them more likely to offer you exclusivity for any new inventions, which gives you a head start in your industry developments.
4. CONTINUAL IMPROVEMENT
Long-term relationships between buyers and suppliers allow for better communication and collaboration. Having a good understanding of each other’s business makes it easier to work together and overcome challenges.
Inevitably, there will be times where a supplier’s performance has deteriorated. You may have outgrown them and find that they cannot live up to your expectations anymore. Before making any final decisions, it’s worth working together with them to try to help them improve. Try to avoid simply dropping them at the first obstacle.
Even if you have good, trustworthy suppliers, you still need to be prepared for the unexpected. The best SRM practices will include engagement with back-up suppliers. For this reason, having a “Plan B” that is ready to go as soon as you need them is highly recommended.
Generally speaking, late deliveries and poor quality products from unreliable suppliers are issues that you’re likely to be stuck with if you don’t invest the time and energy in building stronger relationships with good suppliers.
Some buyers believe that the key to being a good procurement manager is to find the lowest prices. However, the truth is that there is much more merit to focusing on long-term success. Good supplier relationship management actively helps to reduce the likelihood of supply problems and results in sustainable savings and benefits for your business.
What do you think? Have you seen the benefits of strong supplier relationships?