Supplier Driven Success: Invest and Develop Your Suppliers

In a data-driven world, human interaction has become more important than ever. To capture the right opportunities, digital supply chain tools must be used by relationship-driven people. Top manufacturers have begun to spend more cents per dollar of sales on procurement in recent years. These firms rely on suppliers to improve quality, decrease cost, and develop faster than competitors. Though collaboration fosters competitive advantage for both buyers and suppliers, parties often fight for bottom-line savings. Despite industry players like the Malcolm Baldrige Committee fostering partnerships, the ability to source globally and the development of e-procurement has driven many buyers to choose vendors based on cost above all else (1). The real cost of doing business is far greater than the monetary value of a tightly negotiated contract. Short term gain comes at the expense of long term development.

An Unparalleled Advantage

In 2012, McKinsey & Company surveyed over 100 global firms and found that, although 30% stated they collaborate with suppliers, fewer than 10% showed systematic collaboration efforts. Firms with close supplier relationships had earnings before income and tax (EBIT) growth rates double that of their peers (2). Vendors can impact the quality, timeliness, competitiveness and innovation of a firm’s offerings while decreasing costs and placing firms in a favorable cash position (3). Though cost leadership is difficult in many areas due to low margins, product innovation can deliver substantial savings, driven through internal development implemented by the supply chain, or by the supply chain itself (4). In manufacturing, supplier development can help vendors configure products, eliminating redundancy, improving yields, and reducing errors in production (5).

Relationships Go Both Ways

To do business with favorable suppliers, firms should advertise themselves as reliable and appealing business partners. Relationships are built collaboratively by both parties. Best practices for buyers include paying on time after negotiation to promote goodwill, providing adequate lead times while being aware of a suppliers’ production methods and needs, personalizing relationships with strategy meetings and visits, and sharing relevant business information with vendors (3). Aligning on business goals is also an important first step towards finding the right supplier to drive innovation and growth. Vendors need incentive to invest in the relationship equally in a stable business environment (4).

Starting a Supplier Strategy

To begin implementing a successful supplier development strategy, there are a few key factors worth considering. Firms should optimize their internal collaboration efforts before turning to their supply chain partners, as this builds a strong foundation for communication and engagement. Firms should also design programs that meet specific and measurable business initiatives, aligning the overall strategy of buyers and suppliers together. Finally, building transparency and trust in the supply chain is vital for implementing positive change and addressing problems that might occur throughout procurement (2). This framework supports tangible actions that strengthen buyer-supplier relationships. Buyers should understand how their suppliers work before supervising them and developing their technical abilities, and share information intensively but selectively to conduct improvement activities (1). Overall, supplier development and collaboration are vital components to successful business relationships.

At ConnXus, we foster supplier relationships and development. Buyers have the opportunity to engage multi-tier suppliers through ConnXus Platinum. This development program is customizable to a firm’s criteria of areas they would like their suppliers to improve in. Benefits include risk scorecard analysis, strategic sourcing discussions, and business coaching in areas such as venture capital, startup mentorship, RFP submissions, sales and marketing, and minority certification. To learn more about our program, please click here.