Relationship Management Up & Down the Supply Chain

Modern supply chains are somewhat like Rube Goldberg machines — incredibly, often unnecessarily complicated, interconnected systems where a single disruption can trigger a chain reaction, impacting the entire operation. The globalization of supply chains has added even more gears and levers to the machine, increasing disruption potential and the challenge of managing it all.

Given the hyper-competitive nature of the manufacturing industry and how reliant each part of the supply chain is upon the various other players up and down the line, establishing strong supplier relationships is vital. By working closely both with upstream and downstream partners, manufacturers can enhance supply chain resilience, optimize operations, and ultimately, foster a better experience for the end consumer.  

But what does supplier relationship management involve? 

We explore that answer here, in the second blog of our two-part blog series on “Survival Strategies amid Supply Chain Disruptions & Economic Uncertainty.”

What Is Supplier Relationship Management?

Supplier relationship management (SRM) is one aspect of supply chain management that was first proposed in light of an increasingly globalized approach to supply chains. 

It’s a systematic approach to evaluating the various vendors responsible for supplying a given manufacturer with materials, components and services necessary to produce their products. While SRM may have several underlying goals, three of the most important aspects include: 

1.  Developing supplier relationships – Determining which relationships are critical to business success and which aren’t, then taking purposeful steps to foster those essential partnerships. 
2.  Optimizing the value chain – Working with supply chain partners to optimize existing processes, implement new ones, and adopt novel technologies to enhance collaboration and performance.
3.  Practicing risk management – Risk management plays a key role in building resilient supply chains - Especially in a global sphere, each partner in the supply chain will have its own inherent risks and unique risk profile. Therefore, manufacturers must prepare for, identify, and address supply chain risks such that their impact is minimized and operations can continue without interruption.

Where Does a Strong Supplier Relationship Add Value?

Nurturing robust partnerships with high-quality suppliers is a powerful way manufacturers can position themselves for long-term success while minimizing their overall risk profile. Some notable benefits of strong relationships include: 

• Assurance of supply – A trustworthy supplier can  ensure you have the right inventory at the right time. Working closely with suppliers enables you to avoid stockouts, manage lead times, and ultimately maintain a consistent flow of essential materials. 
• Financial contributions – Building trust with your suppliers can lead to better cost management, improved product quality, and higher profit margins. If they are committed to the relationship, they may offer perks like preferential pricing, favorable payment terms, or volume discounts — all of which can improve your bottom line. 
• Supplier management – In a reciprocal business relationship, both sides can  work closely with one another to identify areas for improvement, align expectations, and drive mutually beneficial growth. 
• Time savings – A good relationship with a supplier can significantly reduce unneeded activity, complexity, and variability within the supply chain. When suppliers understand your business and its needs, they can take proactive measures to fix problems, reduce lead times, and drive efficiency.
• Strategic advantage – Suppliers with deep industry knowledge, experience, and connections can provide invaluable insights on trends, technologies, and opportunities — all of which could create a competitive advantage.

Supplier Management

How do you know if a supplier is a good fit for your company? While the exact methods of determining partner viability may vary from one supplier to another, some of the key items to consider include: 

• Supplier performance – Evaluate the price they offer, delivery (including paperwork, packaging, packing slips, and invoice times), as well as the quality of work provided (specifications, compliance, reliability, and durability).
• Supplier relationships – Establish clear lines of communication, provide feedback, and, when there is a problem, maintain open contact channels to address issues and ensure transparency.
• Supplier risk – Assess the probability of each risk and its potential impact. Having a contingency, risk mitigation, and disaster recovery plan in place is a crucial way you can protect your business.
• Business skills – Determine whether your company has the necessary skills, knowledge, and resources to manage this supplier effectively.

Negotiating with a Supplier

Strong relationships form the firm foundations upon which all future negotiations rest. If your partnership is robust, you’ll be able to be more transparent and operate with confidence, knowing that you understand and respect one another. Ideally, this will result in walking away from the discussion with a mutually beneficial agreement.

Even so, remember that any time you sit down at the negotiation table, that relationship could be damaged, especially if you focus solely on your own interests. Here, communication and trust are pivotal. One type of negotiation style may work for one supplier but not another. Building strong relationships will enable you to determine the best approach to take.

CMTC: Your Supplier Relationship Management Partner

For manufacturers, suppliers along the value chain function as an extension of your company. Because the system is so interdependent, all it takes is a single bad apple to create problems up and down the line. Conversely, if you fill your chain with high-quality suppliers and carefully manage those relationships, you can enjoy:

• Supply chain continuity
• Reduced risk
• Greater resilience to market shocks
• Cost reductions 
• Enhanced visibility over supplier performance 
• Increased quality and competition

But how can you start building strong supplier relationships or strengthen existing ones?  

A partner like CMTC can provide vital support for supplier sourcing, supplier development, and supply chain optimization for your business. CMTC’s expert consultants can implement the strategies, tactics, and technologies necessary to create an efficient, agile, and robust supply chain.