Why Is It Important to Have a Good Relationship with Your Suppliers

According to the industry experts, having strategic supplier relationship is termed to key towards better vendor performance management. There is an old supply chain quote, which states, “A vendor is one who offers the best ‘deal’, but the strategic partner is likely to supply high quality goods at very low costs. Every organization that plans to achieve success in this highly competitive world needs to have proper strategic supplier relationships, also called supplier relationship management.

What is SSR (Strategic supplier relationship) all about?

It is regarded to be a comprehensive approach towards managing the communications and interactions between organizations and its suppliers. Its objective is to streamline and to make communication and interaction among organizations and suppliers much more effective and efficient. This task is accomplished through enhanced process efficiency that is related to acquiring services and goods, inventory management, materials management and purchase order processing.

Benefits of good relationships with suppliers

Some of the benefits enjoyed with proper SSR are less administrative burden, reduced expenses, and increased productivity, combined with better integrated supply chain. Since margins being squeezed in almost every industry, it becomes crucial to manage aggressively the cost of items sold, thus increasing profitability.

Rules of engagement to be followed for better SSR

• Careful evaluation and selection of strategic suppliers: When trying to select a strategic partner, it would be essential to check at several things, like the below mentioned:
  • Financial Stability
  • Proximity to network
  • Client references
  • Cultural fit
  • Use of technology
  • Years in business
  • Management depth
• Creating clear expectations: Prior to signing the agreement, clear expectations and rules are to be set, which includes specific tasks that could be necessary to be accomplished. With clear roles set, there should be nothing left for interpretation with regards to responsibilities.
• Defining performance targets and goals: It is necessary to create and track specific KPIs (key performance indicators) for comparing and tracking suppliers. Within the quarterly report card of every supplier, KPIs like expected lead time, on-time delivery, freight terms, etc. are to be included. While setting performance targets, SMART method is to be used for creating objectives and goals. Every goal needs to be:
  • Specific
  • Measurable
  • Timely
  • Realistic &
  • Attainable
• Ranking and monitoring supplier performance: A scorecard is to be used for monitoring the supplier performance. Suppliers are to be ranked good to worst. This data can prove to be useful to enhance performance in the long run.
• Conducting annual reviews: Suppliers are to be met periodically to share ideas on how productivity can be improved, administrative burden reduced, increase in technology usage and lower down expenses.

Conclusion:

It is only a comprehensive SSR program that can help in significant lowering down of cost of goods, administrative burden and to improve overall profitability. Establishing the baseline of the existing suppliers is the first step to be taken with regards to costs, frequency and volumes. The next is to create a well defined set of goals, expectations as well as key performance indicators for monitoring purpose.