6 Steps on Managing Supplier Relationships
When the COVID-19 pandemic upended businesses and economies around the world in early 2020, supply chains were thrown into chaos. Globally, manufacturing slowed for all kinds of goods because company shutdowns and national lockdowns prevented suppliers from producing or shipping orders to their customers. Almost overnight, strong relationships with flexible suppliers became crucial for businesses to continue operating.
As economies have reopened and manufacturing businesses have largely returned to pre-pandemic production levels, the value of a loyal, reliable supply chain remains top of mind. One of the lasting lessons of the pandemic is likely to be the vital importance of building stable, long-term relationships with suppliers.
Companies are able to count on their suppliers to work with them through a crisis when they have invested time and attention in creating strong personal relationships with them. Steve Bash, City National's manager of international banking and trade finance, offered six tips for how to foster those relationships with suppliers.
Understand How Suppliers Work
If your suppliers are critical to your success, it's worth the effort to visit them and meet them and their team, Bash said. In fact, if suppliers are crucial to your success, you must consider them part of your team. Take time to learn about their businesses and see in person how they work.
“Work to understand what drives them," Bash said. “Is it profitability? Product design? Are their values and business objectives compatible with yours? You don't need to mimic them, but you need to understand them."
In addition, find out what percentage of their business is represented by your business. Knowing that will help you put into perspective how important you are to them. If your business accounts for a large percentage of their business, for instance, it might be okay for you to ask for extra services or special treatment occasionally. But if your business is only a small portion of their business, they are probably less likely to do favors for you.
Turn Rivalry Into Opportunity
As the pandemic revealed, it can be helpful to source components from more than one supplier so that you have backup suppliers if your primary encounters a problem.
However, it's counterproductive to incite competition among your suppliers. Instead, ask your primary suppliers if they have backup plans of their own in case of a crisis. This was one of the biggest lessons to come out of the pandemic, Bash said. Rather than selecting other suppliers that could be viewed as competitors to serve as backups, talk to your existing suppliers about alternatives and rely on them as the experts for their particular components.
When competing suppliers offer you lower prices or other deals, it may be helpful for your suppliers to know about it. “If the people you're working with are important to you, bring them information in a helpful way, not in an effort to increase cutthroat competition," Bash said.
Relationship Is a Two-way Street
If you want to have a strong relationship with your vendors, “you have to contribute as much to the relationship as your vendors do," Bash said.
For instance, manufacturers sometimes demand that suppliers improve a product or component. But fostering a good relationship may require that you contribute to the cost of improving that product. “Be willing to give, in some way," Bash said.
Think about steps you can take together to leverage more efficiency or lower cost, such as using the same shipping company. “Look for commonalities between your business and your suppliers' business to leverage benefits and work together to improve timing and cost," Bash said. “Find out if there are any parts of the process that you can take up to simplify or help the vendor be more efficient."
Don’t Be an Outlier
Most suppliers conduct business with many different customers, and if they can provide the same product or service to many customers, they can be more efficient, productive and successful. To ensure strong relationships with suppliers, Bash recommends requiring the same services from them that most of their other customers require.
“If your vendor does some part of the process for you but not for anybody else, consider whether you could do that part yourself," he said. “If working with you requires more work for the vendor, your business may eventually become less attractive to them."
When you avoid asking for extra steps in the process, you are respecting the supplier's capabilities and their production time. This will help ensure that the supplier will appreciate your business rather than dread it.
Help Develop Their Tech
Every company works toward growth and expansion, and you may be able to help your suppliers stretch and grow by working with them to add new capabilities, solve problems and innovate.
However, remember to keep the focus on helping your suppliers' businesses, not just your own, in this process. For example, “if you're asking a supplier to redesign a process or product for you, make sure you are willing to work with them," Bash said. “Don't shop their design around to other suppliers."
Communicate Openly - And Often
Finally, as with any relationship, prioritize communication. “Do what you say you're going to do, pay on time, and make sure there are no surprises," Bash said. “You're working with people. The more you build a personal relationship, the better you'll do."
Throughout your interactions with suppliers, remember that your focus should be on communicating to build loyalty. “You know a client is loyal when they start buying more products from you," Bash said. “You want to make your vendors feel that you're their most important buyer."
This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.