Why Your Business Should Invest in Supplier Relationship Management

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Suppliers are as important as your clients and customers; without suppliers to handle shipping, inventory manufacturing and outsourced services, many businesses would struggle to keep up. Most businesses are increasingly focused on end-user satisfaction but make sure that your business is not overlooking its suppliers. Build strong, successful relationships to help grow your business. Supplier Relationship Management is just as key as Customer Relationship Management. Here’s why.

Managing and developing your supplier relationships

Supplier relationship management is about three decades old. Credited to a Harvard Business Review article in 1983 by McKinsey consultant Peter Kraljic, it transformed old notions of supplier relations being a simple purchase function (operational focus) to supply management (strategic focus).

However, few businesses have proper plans or frameworks in place to manage their supplier relationship. Being proactive and strategic about managing this function will help your business get better results over the long run. Having an open and ongoing dialogue with your suppliers lets you manage risk and build better processes and products. Choosing to be reactive means your business will be permanently managing bad outcomes or scenarios.

Your business and its suppliers can benefit wherever you each sit on the supply chain – whether you are a wholesaler and distributor dealing in high-volume warehouse orders, a manufacturer dealing with multiple outsourced parties undertaking inventory manufacturing, or an importer matching foreign goods to local businesses.

What does it look like?

A few key tenets underlie successful supplier relationship management:

1. Partnership

Develop trust to take the relationship beyond being merely transactional. Bring your suppliers along with your business strategy to build strong business-to-business engagement. Communicate your business focus and direction of growth with your key suppliers. Listen to, and learn from concern or feedback from your suppliers.

2. Payment

Ensure suppliers are pain in full and on time. Payment delays mean suppliers may need to rely more heavily on credit lines and harm your relationship. The larger your business is, the more likely you are to have slow payment systems. Make sure your invoices are error-free. Research suggests nearly two-thirds of past due payments are from incorrect billing. Consider software solutions to track supplier payments and purchase orders.

3. Quality

Quality suppliers drive your business’ continued success. Rely on qualitative metrics as well as quantitative to ensure your business is not simply prioritising matters like speed of delivery over the quality of goods and services.

To help you develop these qualities in your supplier relationships, put in place overarching agreements, Spell out all the essential details, from product or service, pricing and delivery, right through to how you will communicate. Consider including diagrams so that details aren’t overlooked.

Managing and overcoming risks and supply chain crises are fundamental to your business’ operation and customer satisfaction.

Why does it matter?

Good supplier relationships can help your business make decisions faster, with better oversight of risks associated with certain supply lines. Strong relationships can help you overcome and avoid problems with more agility than your competitors.

Where your suppliers are well-integrated into, or well-informed about, your business, they may be able to innovate and improve business practices – for example, one opportunity is striking the right balance between internal and outsourced tasks.

One of the best benefits is a lower cost profile and faster time from inventory manufacturing to market. By having aligned business practices, you can save costs, improve data insights, and speed up your product supply chain.

Overall, time and energy invested into building strong supplier relationships allow you to improve profit margins. Your business will be able to focus on growing its customer base rather than navigating supply issues and dissatisfied suppliers.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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