The Importance of Building Good Relationships with Suppliers

Your company has spent hours working with suppliers to find the optimal balance of price and quality. You have negotiated, compromised, and signed contracts; so, what happens now? In the past, many companies would dismiss the supplier until the next order or delivery was needed. Not anymore. The attitude toward supplier relationships has changed over the past decade. Companies now understand the importance of maintaining close relationships with their suppliers. In 2014, 53% [1] of procurement departments made improving collaboration a top strategy for the year.
 
There are many reasons to improve relationships with your suppliers. This article will focus on what we believe are the three important reasons for most businesses.
 
Knowledge is the Key to Success
It may help to think of your suppliers as gate-keepers. Their knowledge extends beyond the products they supply you with, and very often can encompass production processes or use cases you would never have known about. As your relationship with your supplier deepens, they are likely to be more open to providing their own alternative solutions or products that could decrease your costs, increase your quality, or could provide new product innovations for your company entirely.
 
Knowledge transfer from both parties is paramount to success in a customer/supplier relationship. Only when both customer and supplier can understand each other’s deeper motives throughout the decision-making process, can all parties can provide better service. The shared information will vary from industry to industry, but the ideas are the same. If you let your supplier be a friend rather than simply a means to an end, both parties will benefit.
 
Competing on Innovation instead of only Price
“Let us ask our suppliers to come and
 help us to solve our problems” –W. Edwards Demming
 
Your suppliers are consistently innovating on their own ideas and processes. While some of these innovations may have trickled down to your company, you can be sure that some were kept for their best customers. As the relationship grows between your company and your suppliers, your key customer status may provide you with benefits that were previously unavailable.
 
Depending on the industry, benefits can be defined in many way. , For example, Procter and Gamble expects more than half of their innovations will come from outside their own R&D group this year. While Procter and Gamble is likely a bigger customer to their suppliers than most companies, the story is similar. If you have a good relationship with your suppliers, they can provide you with innovations that could put you in the forefront of your market.
 
Long-Term Relationships Create Financial and Strategic Value
Close relationships, both inside and outside of the business world, have the potential to create value for you in many ways. For a customer/supplier relationship the benefit can be both financial and strategic. In its most basic form, a close supplier could provide your company with volume discounts, ensure your deliveries arrive on time by putting you first, and work with you to lower inventory costs.
 
It is important to realize that as your company grows, you become a larger part of your supplier’s revenue, and in doing so, the success of both companies become intertwined. This is the point where strategic value is jointly created. This value could be created by sharing innovation, allowing your company to be first to market with a new technology, or by jointly creating new ideas. In some cases, one party may financially assist a big growth move that could jointly impact both companies. Regardless of the way the value is created, an ongoing relationship is paramount to organic growth that is fueled by factors outside of your company.
 
These are just three of the many reasons to reevaluate the relationship you have with your suppliers. Every day, more companies are moving to a supplier relationship model that enhances competitiveness in an ever-growing marketplace.
 
Do you think your company can benefit from changing your mindset towards suppliers? We at Spartan Consulting encourage you to take a deeper look at your supplier relationships to ensure you are positioning yourself correctly for your future growth.

Josh Palmer is a Director at Spartan Consulting, and is currently pursuing his MBA at Michigan State University.

[1] http://cporising.com/2015/04/09/the-state-of-strategic-sourcing-collaborate-and-connect-the-dots/