Building Strong Supplier Relationships: Procurement Takes the Lead
As external forces change the expectation of procurement to be more than just the cost police, it's up to procurement professionals to embrace the role as strategists and advisors. As a leader, it is important to cultivate and maintain good supplier relationships to ensure profitability.
Companies struggle in relationships with suppliers for many reasons. For one, they may not understand that they shouldn't treat all suppliers alike. Or, they may not realize that suppliers can deliver more than just a good price on a widget.
Because supplier relationships are critical to a company's profitability and competitiveness, what's the solution to this struggle? The answer is a strong team of professionals from three areas—procurement, the business unit, and suppliers—who understand how to help drive value throughout the supply chain.
Here are steps procurement professionals can take to ensure they're valued members of the team and not viewed simply as the cost police:
- Gain information to do more than just review vendors through an RFX and negotiate terms. Learn everything you can about the function you support. Study the product or service—its components, manufacturers, how the product or service is made or comes together, the length of time it takes, and the total cost of ownership.
- Understand where the business unit fits into your company's profitability objectives. Look forward and anticipate future trends to identify potential supply chain opportunities or problems. Then you can start thinking about solutions.
- Reach out for additional training if you lack the skills to assess and manage information generated both internally and from suppliers. If you don't, you'll miss out on the opportunity to build a powerful strategic advantage that can help your company reach its profitability goals.
- Determine what category your supplier falls in. Then you should know the value each brings to your organization. Supplier categories include:
Strategic suppliers are superior to all others in terms of quality, service level, and cost. Work with these suppliers closely, share information regularly, and solve challenges together. Companies typically have two or three strategic suppliers.
High volume or leveraged suppliers: These suppliers offer a component, product, or service you can switch out easily enough, but requires a large spend. It's best to keep options open to switching these suppliers.
Bottleneck suppliers: If you don't have their product, you can't produce yours. Keep them happy to get your supply when you need it, or keep extra inventory of their product on hand.
Consumable suppliers: Provide products readily available at a low dollar volume. Because these suppliers don't require a lot of oversight, automated purchasing works best. The supplier provides regular reports and possibly enables technology for self-service.
- Demonstrate your knowledge as you collaborate with other members of the team. Use your knowledge of the product or service, and its market, to build strategic relationships with suppliers. Good relationships provide a competitive advantage in addition to keeping costs down.
- Focus on improving company success, not just procurement performance. Engage stakeholders to understand their needs.