How to better manage supplier relationships in procurement

Supplier relationships. They can make or break the smooth and efficient running of your procurement operation. With supply chain disruptions on the rise and risk management more vital than ever, developing deeper relationships will be key for procurement managers, specialists and analysts - driving better responsiveness and timings as well as greater cost-effectiveness and quality.

With many enterprise manufacturers having well over 500 suppliers, this can feel like a monumental undertaking. We break it down into practical, achievable steps. 

Analyzing bids and negotiating effectively

It all starts with sourcing compatible suppliers in the first place. Here's how to approach this effectively:

• Comprehensive bid analysis: Beyond just the price, analyze bids based on quality, reliability, flexibility and past performance. Use a scoring system to objectively compare bids on various factors. Procurement managers should use a scoring system that is objective, transparent and aligns with the specific requirements of their procurement project. The system should allow for a comprehensive evaluation of bids based on both price and quality, with a clear methodology for weighting these components according to the project's priorities.
• Understand the supplier's perspective: Before entering negotiations, understand the supplier's costs, constraints and business goals. This knowledge can help identify areas where both parties can find value.
• Focus on Total Cost of Ownership (TCO): Negotiate based on the total cost of ownership rather than just the purchase price. Consider factors such as maintenance costs, operational costs and the cost of potential downtime.
• Think long-term: Approach negotiations with a long-term partnership in mind. Mutual benefits and shared growth opportunities can lead to more favorable terms and innovation for both parties.
• Regular, effective communication: Clearly communicate your needs, constraints and expectations, as well as a regular cadence for interaction. Effective communication can prevent misunderstandings and foster a more collaborative negotiation process.

Metrics for timing and responsiveness

To effectively manage and improve supplier performance, it's essential to have the right metrics in place. Key metrics include:

• Order fulfillment time: The time taken from placing an order to receiving it. This metric helps track supplier efficiency in processing and delivering orders.
• On-time delivery rate: The percentage of orders delivered on or before the promised delivery date. This is a critical metric for assessing reliability.
• Response time to inquiries: How quickly a supplier responds to inquiries or issues. Fast response times are indicative of a supplier's commitment to their clients.
• Flexibility in order changes: The ability of a supplier to accommodate last-minute changes to orders. This metric assesses the supplier's agility and flexibility.

Regular monitoring and analysis of these metrics can highlight areas of improvement and help procurement managers make informed decisions. They underpin effective supplier relationship management (SRM), ensuring accountability and allowing the procurement team to make data-driven decisions. 

Improving supplier relationships

For your incumbent suppliers, there’s every opportunity to create a better rapport. This is a must-have in today’s procurement landscape, helping to guarantee a steady supply of goods and services but also fostering collaboration, innovation and flexibility in times of need. How can you take your exchanges to the next level?

Regular communication: It seems like a no-brainer, but given the amount of suppliers in play combined with increasingly leaner procurement teams, it can feel like an overwhelming challenge to establish regular communication channels with suppliers. However, this could be through quarterly business reviews, monthly calls or annual strategic planning meetings. The goal is to create an open line of communication where both parties can share updates, challenges, and opportunities.

Collaborative problem solving: Encourage a partnership approach to problem-solving. When issues arise, work together with suppliers to find solutions rather than placing blame. This approach builds trust and demonstrates that you value the relationship beyond just transactions.

Transparency and honesty: Be transparent about your organization's needs, expectations and challenges. Honesty about what is feasible and what isn't helps keep everyone on the same page and builds a foundation of trust. 

Recognition and feedback: Just like anyone on your team, rewards for a job well done are important! Recognize and appreciate your suppliers for their good work. Constructive feedback is equally crucial; it should be delivered in a way that is helpful and aimed at improving the partnership.

Enhancing supplier responsiveness

A responsive supplier is crucial for maintaining operational efficiency and meeting market demands. Here are a few ways to keep that communication two-way and regular. 

• What do you need and when do you need it? Clearly communicate your expectations regarding lead times, quality and communication. 
• Implement joint performance metrics: Develop and agree on performance metrics related to responsiveness and timing. Regularly review these metrics together to identify areas for improvement.
• Leverage technology: Utilize technology for better collaboration. Supply chain management tools can offer real-time visibility into inventory levels, production schedules and delivery timelines, making it easier to anticipate and respond to changes.
• Develop contingency plans: Work with your manufacturing suppliers to develop contingency plans for critical goods or services. Knowing there's a plan in place for potential disruptions can significantly improve responsiveness when everyone isn’t scrambling to deliver or fearful of negatively impacting the relationship. 

By implementing these strategies, procurement managers can significantly improve supplier relationships, enhance responsiveness, and ultimately ensure that their organizations remain competitive in the market. The key is to approach supplier management with a strategic mindset, focusing on building a mutually beneficial relationship that drives growth and success for all parties.

An alternative approach

At DSSI, we help you streamline, saving time, money and resources by navigating one process instead of hundreds or thousands of individual suppliers, payment terms and invoices. 

For one automotive manufacturer, this meant taking over 900 vendors and transacting on their behalf. We also helped them consolidate their vendors. You can check out our guide to supplier consolidation here. 

Localization experts and in-country sourcing optimize cost efficiencies wherever you are based. The majority of our customers achieve at least 15% savings in MRO categories from their first year onward and are set up for success with an effective MRO center of excellence structure. If this sounds like it could be of interest to you, get in touch for a chat.