This guest contribution written by Dr. Muddassir Ahmed. Muddassir is a Supply Chain Management expert with over 14 years of industry experience. He is the founder and editor of SCMDojo, an influential Supply Chain blog and learning resource.
Some third-party vendors may provide you with goods, services, and many other supports. Would you be able to track everything manually? What is your strategy for effective supplier relationship management?
If not, then what’s the solution?
It’s simply following the supplier relationship management strategies.
Why is Supplier Relationship Management so important?
If with some strategic movement and management, someone can minimize the chances of failure in third-party management, gets a more collaborative relationship, and able to realize and uncover the new value of the third-party vendor, then it is natural that the particular strategic movement will be followed.
And Supplier Relationship Management is that only strategic movement.
But there should be reliable and full-proof strategies to have trusted, long-lasting relationships with dedicated suppliers.
Here Are the Key Strategies to Build Effective Supplier Relationship Management (SRM):
You can follow these best practices of SRM and benefit your business by increasing productivity.
Don’t think your suppliers as your vendors only:
Your partnership with your vendors should not only base on the financial transactions. Make them feel themselves a part of your business. Discuss your plans with them, like new product launches and product promotions. Let them tell about their concerns. You may also hire an employee with an ITIL Certification, who can handle this matter well. They can thoroughly assess the cost and maximize the output.
Use technology as much as possible:
Technology makes things easier. Try using different software and technology, like supplier management software, purchase order management software or any similar software that can make your job of keeping track of bills, purchase orders and other important things easier.
Make sure to make timely payments:
Don’t you want timely delivery from your suppliers?
Similarly, suppliers want timely payment from their customers to end. Always pay timely to have a good relationship with your vendors. Due to any reason, if you are unable to pay within the stipulated date, then let your vendors know it well time ahead. You can use specific Supplier Relationship Software to manage this critical aspect of timely payment to your vendors.
You pay a good price; you get good value:
If your business health is sound, then try paying good to your vendors. The more you value to the right payment to your vendors, the more value and quality work you get from them. But one thumb rule is that never stick to an individual supplier just because you like him/her. Interact with other vendors also, and search for opportunities where you can get maximum output from minimum effort.
Make a proper Supplier Relationship Agreement:
It is most unwanted that after several months of trustworthy relationship with your vendor, one fine morning you get disputes regarding some major or minor issues.
So, it is very important that you have a proper Supplier Relationship Agreement before you start working with any vendor.
The terms and conditions regarding payment, price, delivery deadlines, service terms, etc., are necessary for your agreement for future reference and a must for effective supplier relationship management. Following this step properly and by keeping yourself organized, you and the third-party can track in case of any confusion that may arise in any particular situation.
I would strongly suggest to make Supplier Development activities as a must for effective supplier relationship management.
Evaluating the risk is very crucial:
You cannot select a vendor at random. It is very crucial to evaluate the risk before you enter into any legal agreement.
Ask the company about their previous experience, if they have any relevant experience in the domain you want them to work if their price is competitive and so on.
Can you sacrifice quality just because of the price?
Can you sacrifice deadline just because of price or quality?
So, think well before you hire one. The vendor may not be the cheapest in the market, but if they are offering high-quality service or product, or some vendor is offering high-quality service with timely delivery, then I believe sacrificing a bit on the price aspect is wise.
Dedicated Supplier Relationship Management (SRM) process is a must:
Initially, you may think it is unworthy to spend on a dedicated SRM Process. However, trust me it’s a worthy investment.
Bad contract? What to do?
It may happen sometime that you are stuck in a bad contract with one of your supplier. The situation is so bad that you need to drop the contract instantly like a hot potato. What would you do? Be calm. Just evaluate the risks involved, and the costs that may occur to switch to a new supplier.
Be aware of your brand devaluation:
Always be mindful of who you are taking on board as your supplier. A wrong activity of your supplier may undervalue your brand name to a great extent. For example, if a supplier is using child labor, no matter how deeply you are involved in it, or even if you do not know about it, but it is for sure that your brand value will be undervalued.
Try to foster positive behavior:
It is not only the buyer’s responsibility to foster a good relationship and behavior with the supplier. If a supplier is not delivering on time or showing opportunistic behaviors, then the supplier is not performing well in the mutual positive behavior for the growth of both the parties.
One way to address this is to launch Supplier Development Initiatives to Create Improvement Projects, in doing so you can show supplier your positive intent and deliver the improvement results you want for your customers.
However, there are many drawbacks of an effective SRM also:
According to a study, the main obstacles are:
- Internal stakeholders alignment issues
- No clear business case for SRM
- Lack of authority
- Supplier involvement challenges
- No clear process defined
- Talent and resource issues
And many more.
A perfect Supplier relationship management is the key to success for any business that is having third-party vendors or suppliers. But managing them is a daunting task. An organization needs to be strategic enough to minimize the effort of managing the suppliers.
For this reason, good strategies of supply relationship management are essential. Hope the tips mentioned above will help you to frame a good supplier relationship management system in your company that will ultimately lead to a betterment of the company.
Please share with us if you follow any unique strategy to have a good business relationship with your vendor.
We would be happy to know it from you.
A big thanks to Muddassir Ahmed for contributing this guest post! We hope it gives some supplier relationship management tips you may not have considered before.
About the Author:
Dr. Muddassir Ahmed is global speaker, blogger and supply chain industry expert. Dr. Muddassir Ahmed has received a Ph.D. in Management Science from Lancaster University Management school. Muddassir is a Six Sigma black belt and has founded scmdojo.com with the intention to enable supply chain professionals and supply chain teams to solve the problems they face in their jobs & business.