Why you need to develop strong supplier relationships
Mutually beneficial relationships with suppliers are a measure of success for procurement teams.
When both parties get a lot out of engaging each other, the relationship transforms from being merely transactional to strategic. It's no longer just about getting the lowest price and the minimum technical compliance from a supplier - it's about making your business more valuable to them so they in turn become more valuable to your business.
What are the benefits of strong supplier relationships?
For a start, your communication becomes more honest and collaborative. Understanding each other’s businesses helps drive efficiencies and improvements, as each side is willing to share their thoughts on what's going well, what isn't, what's taking too long, et cetera - all things that wouldn't always be communicated with a supplier, but can be in a strong relationship.
Another benefit is the quality and consistency of supply you get. With a good relationship comes the chance to refine and tweak the product or service over time with your feedback. You can also offer the supplier longer-term contracts without the need to tender so often. This way the supplier can have more confidence investing in product innovations or process improvements, because they know they have a steady amount of work lined up in the future.
When the strong relationship is mutually beneficial, you're sometimes afforded a number of competitive advantages: things like better service from the supplier or being offered innovations first, exclusively or at no additional cost. With bad or neutral supplier relationships, it's unlikely a supplier will be so generous; whenever those innovations come up they're either not offered because it doesn't fit the price the customer is willing to pay or when they are offered, it is at an additional cost.
All in all, the value gained from a strong supplier relationship becomes much greater than what was originally contracted.
How can procurement teams develop good supplier relationships?
The question for procurement teams, then, is "how can we move towards stronger relationships with our suppliers?” The first step is to decide which suppliers are going to be worth it. Strong relationships are valuable, but they take work; for some goods or services, it's just not going to be worth the time and effort as there's not much value that can be added above what's in the contract. Once you've found a supplier, there are a few things you can do to strengthen the relationship.
It starts with having regular meetings. You need to do your due diligence to understand their business. Find out what helps them, what doesn't, the things you ask them to do that are actually quite difficult - for example, producing a report every week might be onerous for them, not particularly valuable for you, and therefore a requirement you could remove from the contract. Regular meetings also give you an opportunity to recognise good performance when it occurs.
A strong relationship also requires a bit of flexibility. If you're pulling out the contract every time something isn't delivered exactly as specified, it's possible you'll be costing yourself more in the long run by hurting your relationship. Instead of always asking for a discount, pay what's fair - it might cost you more than what your targeted saving was, but that supplier may be able to deliver efficiencies back into your business that are economically more valuable, giving you a bigger overall saving.
Finally, you can also offer key suppliers market share or monetary incentives. If you have multiple firms supplying the same product but there's one that stands out - and with whom you'd like to build a stronger relationship - offering a larger percentage, or perhaps all, of your business for that product can be a fitting reward for great service. Likewise with monetary incentives. If there's a supplier that has done a lot of work on their end towards making their offerings more affordable, you can offer them a share of savings.