How to maximize the value of Supplier Interactions and uncover the hidden value and reduce risk of failure in procurement? Can we achieve this without spending extra money? Yes we can.
There are many ways to achieve this and one of them is to create productive supplier relationship (1).
How to develop productive Supplier Relationship? To develop productive supplier relationships we need to do some groundwork. Obviously we need to put efforts and should have perseverance.
What do we gain from Strong Business Relationship with Suppliers and what efforts we need to make to build productive supplier relationship?
The simpler we keep things, the more successful we will be. It’s as simple as that. Just meet with Suppliers Regularly, survey the suppliers in regular intervals, form improvement teams along with suppliers & arrange for reciprocal visits. These are some of the ways to make strong bond with suppliers that can benefit the organisation in several ways.
Benefit of strong supplier relationship:
Foremost we need to treat our suppliers’ fair. That means treating all suppliers equally, without favouritism or discrimination.
Suppliers are more likely to cooperate with us when our working relationship with them is strong. The benefit may be in terms of getting shorter lead time when it is really needed or may be taking return of a part in case of sudden design change.
A close, collaborative relationship also makes it easier to negotiate terms and prices with our suppliers and helps us to avoid disputes as our business will be highly regarded by them.
Supplier can also help us to identify problem areas that are generating additional cost to our organization. Sometimes, it is just good business practice to be open and listen to how suppliers view us as a customer.
With good working relationship with Suppliers we can invite supplier to be part of our organisations cost reduction projects and to work on multi functional teams to help improve our overall operations. Only with good supplier relationship we can have the opportunity to even leverage the talent within our supply base.
How effective communication helps in building strong supplier relationship?
Effective communication (2) can produce remarkable results. For example, timely sharing the forecasts of trends can reduce cycle time by preparing our suppliers to respond more rapidly to our needs.
This result in improving fill rate and rise in service levels.
When the relationship could go wrong?
There are numerous daily activities when not performed, can lead to disputes and concerns. Although these issues are relatively minor and part of the normal course of business; however, when failure to perform routine supplier support activities becomes the rule rather than the exception, we run the risk of reduced supplier performance levels.
Some issues are common to most of the industries. Like not paying invoice on time. Every business understands time value of money. That means when we don’t pay due invoices on time, we lowers suppliers profit. While an occasional late payment can be overlooked by suppliers, a pattern of late payments may push the supplier to raise its prices in compensation.
Buying Organizations should exchange ageing reports with the suppliers and in return suppliers would share their ageing report. Suppliers ageing report shows the invoice was submitted and how many days old it is, while the buyer’s ageing report shows how long the invoice has been received and when payment will be made based on agreed payment terms. In this way, each party can proactively identify problem payments before they get out of hand.
Second issue that create dissatisfied suppliers in organization is that Buyer not able to maintain desired confidentiality. Any information given to us by the supplier should always be considered confidential and never disclosed to third parties outside our organization. Most of the time, buyers and sellers exchange confidentiality agreements or nondisclosure agreements early in their relationship that requires both to maintain certain levels of confidentiality. Regardless of the existence of such legal documents, it is of the utmost ethical importance that information given to us in confidence never be shared with our suppliers’ competitors.
Third point that could damage the supplier-buyer relationship is the situation when supplier feels that our dealing is not fair or equal with them. To maintain credibility requires that we treat all suppliers fairly and consistently, avoiding the perception that we favour one over the others.
Whereas simple actions like meeting the suppliers regularly and constant interaction with fair dealings boost Supplier-Buyer relationship resulting in many direct as well as indirect advantage to the organisation, non keeping payment commitments and disrespecting confidentiality terms could break the trust of Suppliers resulting in direct or indirect loss to the organisation.