How well do you know your suppliers? In today’s business climate, the importance of supplier relationships cannot be underestimated.
The Covid-19 pandemic undoubtedly put the spotlight on supplier relationships. As businesses were disrupted and supply chains broke down around the world, supplier relationships have been put to the test every day. It’s no wonder at the start of 2022, more than 66% of CPOs were prioritising supplier collaboration and other broader value-generating activities.
Yet, despite this, according to McKinsey & Co, only 21% of companies have visibility beyond their tier-one suppliers, and only 2% of companies have visibility into tier three.
In 2022, procurement professionals need to look at how they can build strategic, dynamic relationships with suppliers – relationships that are based on much more than price alone.
Here’s why:
1. You can collaborate and innovate
Stronger relationships mean you can collaborate, explore new ideas and solutions to problems, and create new efficiencies. It opens the doors to supplier-enabled innovation, which can help you tap into market expertise, innovate new products and stay competitive.
This is where you make the big leap from working with “suppliers” to having “partners”. You form a relationship founded on establishing alignment, collaborations, and an ethos of mutual value.
For example, during difficult times, your suppliers can talk about the issues they are facing and you can collaborate on solutions that are in both of your best interests. After all, you both want the market to grow, you both want to earn additional revenue, and stay resilient in tough times, so how do you work together to reach your goals?
It’s no wonder that, according to Gartner’s “Future of Supply Chain: Crisis Shapes the Profession” report, more than three-quarters (77%) of companies said they are investing in deeper and more collaborative supplier relationships to improve resilience and agility.
In one McKinsey survey of more than 100 large organisations in multiple sectors, companies that regularly collaborated with suppliers demonstrated higher growth, lower operating costs, and greater profitability than their industry peers.
2. You can reduce risk
Knowing and working closely with your suppliers can dramatically reduce risk for your organisation. The better you know your suppliers, the more you can collaborate with them to reduce the negative impact of shortages, disruption, inflation, and more.
When risk levels are low, organisations are able to maintain a steady product and reduce surprises. You can work with tier-one suppliers to reach deep into the supply chain to identify and assess risks, especially in the face of disruptions like a pandemic.
However, according to Deloitte’s 2021 CPO survey, only 26% of leaders were able to confidently predict risks within their supplier base.
Shaky supplier relationships can expose an organisation to many challenges and risks:
- Reputational risk: For instance, if a supplier is using unethical sourcing techniques, like employing young children, it could damage your reputation and lead to reduced sales, loss of customer goodwill, and even lost customers.
- Information security and privacy: Sensitive data may be compromised by a cyber-security failure at the supplier end, which could mean massive financial and reputational damage.
- Regulatory risk: Non-adherence to regulatory requirements could mean legal as well as financial implications.
- Resilience risk: A failure or interruption at the supplier’s end could delay or hinder the delivery of your end-product.
3. You enjoy more flexibility
The majority of today’s businesses are fast-paced, agile and adaptive. And if they aren’t, Covid-19 has proven that they certainly need to be in order to survive and grow.
Therefore, in a quest to add real value to the business, procurement professionals need to seek out suppliers who understand this dynamic, and are agile and flexible enough to respond to ever- changing business conditions.
To achieve this, both parties need to spend time getting to know each other. Suppliers need to know what’s important in their customer’s world – business challenges, competitor landscape, external environmental factors, consumer expectations, and more, while the procurement team need to understand what suppliers can bring to the table.
Procurement teams can benefit by working with suppliers who can help with a whole solution, end to end – not just one product at a time. This makes the procurement process more streamlined and efficient, while also ensuring the supplier can identify other areas where it can add value.
4. You can achieve your sustainability goals
Fact: You cannot achieve sustainability goals without working with your suppliers. Partnering with suppliers is the fastest way to affect the most impactful change on sustainability and ESG objectives.
For example, multinational consumer goods firm Unilever understands and is actively pursuing a partner collaboration approach. In an article by SpendMatters, Alexandra Tarmo, Head of Partnerships & Social Procurement at Unilever said: “In order to achieve our sustainable growth ambition, we must collaborate with our suppliers and partners, and the technology we use to facilitate that engagement plays a vital role.”
5. You can become the customer of choice
When you look after your suppliers, they’ll look after you – it’s an investment. Your goal should be to reach the privileged ‘customer of choice’ status with key suppliers, which Spend Matters defines as “a relationship founded on transparency, accountability, knowledge sharing and mutual benefit, supported by two-way processes and centralization of key insights.”
Over to you
How well do you know your suppliers? Do you know how to effectively build stronger relationships?
Learn practical ways to improve supplier relationships in our procurement and contracting courses.
