KEYS TO SUCCESSFUL SUPPLIER RELATIONS
Good purchasing practices are integral to business success, and few factors are as vital in ensuring sound purchasing methodologies as the selection of quality suppliers. Indeed, finding good suppliers and maintaining solid relations with them can be an invaluable tool in the quest for business success and expansion. For a surprisingly large number of procurement organizations, suppliers have become an important factor in their planning. In fact, for many procurement organizations, suppliers have become their secret competitive weapon, their hidden resource, and their competitive edge.
These competitive gains can manifest themselves in a wide range of areas, from better price and delivery times to increased opportunities to consider and implement innovative practices. However, such improvements will not be realized without meaningful leadership from business owners and executives. Leading companies develop tailored supply strategies that are directly linked to their corporate strategies.
These leaders emphasize shareholder value creation, revenue growth, and cost competitiveness, and establish specific programs with their key suppliers in order to ensure that these priorities are addressed. Smart business leaders use suppliers to maximize their own product competitiveness, going beyond the narrow focus of cost reduction. Leaders exceed traditional sourcing practices, adopt new models to fully leverage supplier capabilities, and further their own position in the market place.
Evaluating Suppliers
Whether searching out new suppliers or benchmarking the performance of current suppliers, businesses are urged to consider the following when evaluating their options:
- Commitment to quality: Not surprisingly, product quality is regarded as an essential factor in selecting a supplier. Specifics in this realm include the supplier’s statistical process control methods, its QS 9000 registration, its approaches to problem solving and preventive maintenance, and its methods of equipment calibration. What gets looked at is whether the supplier is a distributor or manufacturer. With a distributor, the team wants to determine whether it carries mainly Grade A-lines or B lines in a particular group. With a manufacturer, it is important to have QC people on the team to realistically appraise the supplier’s control standards and methods of measuring quality.
- Cost Competitive: Competitive pricing is another huge factor, especially for businesses that are smaller or experiencing financial difficulties.
- Communication: Suppliers that do not maintain a policy of open communication, or even worse, actively practice deception, should be avoided at all costs. The frustrations of dealing with such companies can sometimes assume debilitating dimensions. Moreover, constant exposure to such tactics can have a corrosive effect on internal staff.
- Timely Service: Business strategies are predicated on schedules, which in turn are based on receiving shipments at agreed-upon times. When those shipments slip, business strategies suffer. The blow can be particularly severe if the supplier is negligent or late in reporting the problem. Reliable delivery is first among the basics of what we expect from suppliers. It doesn’t have to be instantaneous; it just needs to get there when they promised it would.
- Flexibility and Special Services: Many purchasers express appreciation for suppliers that take extra measures to satisfy their customers. These “perks” can range from after-hours accessibility to training inventory support.
- Market Knowledge: Suppliers with extensive knowledge of market conditions and mastery of contemporary issues impacting your business can be immensely valuable in helping companies chart a course to sustained financial success.
- Production Capabilities: The supplier’s capacity for program management and production should be considered, including its ability to integrate design and manufacturing functions, its approach to design changes, and its program measurement features.
- Financial Stability: Businesses that allocate large sums for purchasing materials often prefer to make long-term deals with suppliers that are financially stable. Such arrangement not only convey security, but they allow companies to learn about one another and gain a fuller understanding of each business’s needs, desires, operation practices, and future objectives.
Moreover, being in a meaningful relationship instead of a one part stand encourages suppliers to make investments that are tailored to the purchasing firm’s needs, and to be thriftier. A trusted supplier is more likely to think about the purchasing firm’s own customers.
- Logistics/Location: Supplier capabilities in this area include transportation capacity, sourcing capabilities, and just-in-time performance.
- Inventory: Evaluation of this consideration is dependent somewhat on the supplier’s business. If the supplier is a distributor, the emphasis will be on how well his inventory is set up to avoid stock-outs. With a manufacturer, emphasis has to be on inventory access-ability. If the supplier has a (just-in-time) program with 24 hour assumed delivery, it is in better condition than the manufacturer with a lot of raw material inventory and an eight week lead-time for raw materials.
- Ability to provide technical assistance: Suppliers with top research and development capacities can be quite valuable to buyers, providing them with significant savings in both price and quality.
A common lament of suppliers is that buyer organizations all too often have unrealistic expectations about the supplier’s ability to anticipate buyer needs. A purchasing executive admitted that, “In new technology areas we have great difficulty getting the users in our own company to define what they want. Most have an attitude of ‘I’ll know it when I see it.’ And many of these users keep changing their mind.”
Honesty on both sides is another important quality in effective buyer/supply relations. Business owners hate being misled by their suppliers, yet they are often less than aboveboard in their own communications with suppliers. This is most common when the business is grappling with past due payments, but entrepreneurs should avoid subterfuge and be upfront with suppliers about their situations.
Instead of lying and saying the cheque is in the mail, tell suppliers what’s happening and what you propose to do about it. If you have a note that’s due, you call them, instead of waiting for them to call you. They appreciate that. Business people are afraid to make the phone call; they want to make it all sound rosy. But if you owe them, suppliers are eager to find a way to work with you.
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