Best Practices for Managing Strategic Suppliers effectively
- 12 July 2018
- Written by: bemelmans
- Categories: Procurement, Supply Chain
Managing strategic suppliers effectively is essential to drive competitive advantage for modern global organizations. The key lies in the ability to extract the best from key partners. The presence of strategic vendors and suppliers is critical to provide products or services that meet your company’s major demand requirements and plays a vital role in your supply chain. Investing time and efforts in managing these suppliers contributes considerably to the success of your organization. This article outlines some of the ways in which buyers can increase their effectiveness in managing critical suppliers. Below are several best practices for strategic supplier management:
- Identifying your strategic suppliers
The amount you spend on any particular supplier is not the only factor needed to identify strategic suppliers. The best evaluation method is whether or not you anticipate a long-term relationship with the supplier to help your organization compete successfully in the market.
Your company’s business strategy is correlated with your strategic partners. The following questions can help companies identify truly strategic suppliers:
- What is your company’s business strategy in your marketplace?
- Do you have a plan in place to accommodate changes in your business strategy, and how would changes in demand impact your purchasing decisions and spend?
- How do your products and solutions meet your customers’ needs today? How do you expect your customers’ needs to change in the future?
- How do you anticipate products and services purchased today integrating into your products and solutions in the future?
- Which products or services purchased (and consumed internally) to run your business today do you see becoming impacted based on how you may purchase in the future? (Indirect procurement)
- Which suppliers are best at delivering what you need today?
- Which suppliers have the best strategy (currently in place) to deliver what you anticipate you may need in the future?
- Supplier relationship management training
Providing an innovative corporate training can significantly help you improve your relationship with strategic suppliers. A PWC research highlights that while the benefits of SRM are acknowledged, the average SRM maturity level is still low. This is the reason why corporate training is essential to ensure a proficient supplier relationship management. Strategic partnerships are at the top of the corporate agenda of global organizations and SRM is seen as one of the few remaining procurement topics that can still make a major difference. Nevertheless, numerous organizations find it difficult to initiate, develop and manage their supplier relationships.
The PWC research specifies that the lack of specific competencies and skills is among the key challenges faced when implementing supplier relationship management. Therefore, there is an indication for a call to action to implement SRM training and development programs. Furthermore, the research highlights the key value drivers for supplier relationship management: innovation, sustainability and resilience. It is important that both partners develop and deploy these capabilities. Factors like trust, open communication, empathy and a win-win orientation are fundamental in order to benefit from these capabilities and eventually function properly.
Hence, training and development programs represents a good means to encourage these qualities. The training courses should cover topics such as the process to run SRM, supplier identification, supplier segmentation, relationship analysis, relationship management etc. All these lead to in-depth insights about supplier relationship management which consequently result into more profitability and positive outcomes for the organization.
The two aspects which need to be taken into consideration when communicating with strategic suppliers are: firstly, the purpose of such relationships is to build an effective, long-term relationship. Hence, buyers must communicate with the suppliers on the basis of an equal partnership. Threats, aggression and negotiation stunts should be avoided as these will likely undermine the degree of supplier trust into the relationship. It is wiser to consider the supplier as an extension of the internal organization and therefore subject to the professional respect afforded to co-workers.
Secondly, the pace of the relationship. For instance, some companies will encourage buyers to have at least one or two informal coffees year with their key contacts in strategic suppliers. This usually leads to a more informal working relationship between two individuals and within that informality greater trust is forged. This also maximizes the possibility for knowledge sharing from both parties, providing the supplier with more insight into future product road maps. It also leaves the buyer with a greater appreciation of supplier capabilities.
In sum, these three activities can better ensure that strategic supplier relationships are more likely to prosper. Training and development programs can considerably improve the skills needed for the proper functioning of supplier relationship management. This will ensure a lasting relationship with strategic suppliers, resulting in a significant improvement of the bottom-line of your organization. Companies need to work towards engaging key strategic suppliers to build a mutually beneficial relationship.