How to develop your supplier relationships

Developing good connections with suppliers—sometimes called supplier relationship management—is critical to business success.

Businesses are increasingly relying on suppliers to help reduce costs, innovate, improve quality and reduce lead time. Good relationships with suppliers can provide a competitive advantage.

In fact, the most successful Canadian entrepreneurs rank relationships with suppliers as their most important business relationships, according to a recent survey of 1,000 Canadian small and medium-sized businesses.

Nearly one-third of the most successful firms said supplier relationships were critical to their success, in contrast to less than one-quarter of less successful companies.

Continuous effort needed

First-rate supplier relations require a continuous, long-term effort. Start by identifying the few vital suppliers that contribute to your company’s advantage over your competitors. You have a vested interest in their success. Focus on building and maintaining partnerships with them.

He divides the process into several steps:

1. Evaluate all suppliers—Make sure they are the best ones for your business and that their products meet your needs. You want suppliers who are aligned with your strategy.
2. Integrate key suppliers into your business—Learn how they operate and make sure your systems work seamlessly with theirs in areas such as invoicing and order fulfillment.
3. Collaborate on quality improvement, problem-solving and product development—Work together to improve capabilities and adopt best practices on both sides.
4. Measure performance continually—Have structured ongoing discussions with your key suppliers about how to improve.

Ultimately, the idea is to work together as partners so both sides prosper, sometimes companies focus just on the short term and only demand cost reductions from suppliers, rather than thinking strategically. That doesn’t help in the long run.

Do’s and don’ts of supplier relationships

1. DO—Take a long-term approach to supplier relationships. Commit to shared prosperity and mutual development. Help suppliers boost their technical and problem-solving capabilities.
2. DO—Understand in detail how your key suppliers work. See how they operate and learn their culture to ensure mutual trust and strong partnerships.
3. DO—Periodically evaluate the performance of key suppliers with scorecards, and periodically scan the market for better and/or more cost-effective alternatives. While you want to nurture strong relationships with suppliers, you don’t want to become captive to them.
4. DON’T—Focus only on short-term goals, such as cost-cutting. Don’t insist on unreasonable payment terms or pressure suppliers to assume the cost and risk of holding the bulk of your inventory.
5. DON’T—Focus your efforts on all your suppliers. Save your special collaboration for only a handful of key strategic partners. Anything more is unsustainable.