Author’s Note: This article was originally published by Future of Sourcing and authored by Keelvar’s founder and CEO, Alan Holland. The version below is slightly modified, but you can find the original here.
Today's sourcing leaders must operate within an intricate web of buyers and suppliers from around the world. Companies must factor in much more than price when deciding which parts of the business should be awarded. Prospective suppliers should be considered from multiple angles. Although cost savings can seem like a clear win for your bottom line, this can lead to missed opportunities to capitalize on additional value suppliers can extend to your business.
An integrated approach to managing supplier relationships can unlock deeper benefits for buyers and vendors, including product innovation, quality, better service terms, and adherence to CSR commitments. In fact, research from McKinsey (2020) shows that companies who regularly collaborated with suppliers demonstrated higher growth, lower operating costs and greater profits.
Building Supplier Relationships
It’s crucial to facilitate an environment where suppliers can play to their strengths and build off mutual trust to further decisions in strategic sourcing. Unfortunately, companies with the most spend are often those with the least amount of time to improve supplier relationships. The volume of work sourcing teams have on their plates can inadvertently skew relationships with key suppliers toward transactional contracts rather than strategic partnerships. Essentially, money takes precedence over time and joint effort. Instead, you should create a process that allows you to draw on the expertise of your suppliers and allows them to create value.
But how can this be best achieved? It may sound time consuming to focus on promoting greater strategic alignment, but implementing modern technology solutions is key to giving procurement employees back more of their time.
In a 2021 Chief Procurement Officer survey from Deloitte, driving operational efficiency was shown to be the top priority for CPOs followed by reducing costs, digital transformation, innovating internal operations and introducing new products and services. Strong relationships with suppliers are crucial to all of these goals and can be easily facilitated by working through digital transformation. But regardless of your purchasing power, it is challenging to accomplish all five without utilizing automation.
The top-performing procurement teams are those that seek out solutions that work for all parties and leverage optimization and automation to weigh the various tradeoffs of different scenarios and centralize supplier collaboration.
For example, if sourcing packaging materials for your company you may be provided with specifications from your internal spend stakeholders. When suppliers receive a bid sheet with those specific requirements, they should also have the ability to submit alternative offers.
One supplier may be able to meet these requirements but use more sustainable material, while another might be able to bundle multiple items at a reduced price or offer better payment terms. Another supplier may be slightly more expensive, but be a preferred incumbent with greater volume handling capabilities.
Sourcing optimization software is designed to automatically collect creative bid data and analyze scenarios on various types of bids. Without this, procurement won't reap the potential benefits from improving supplier bidding options.
Looking To The Future
Remember, the race to the bottom is long over. Constantly asking your suppliers to do more for less is unsustainable for both parties. The next practice is to find common value that enables both parties to grow, remain resilient and contribute value. Both buyer and supplier – and everyone else in the connected supply chain – gets exposed when this shared value falls out of balance.
Furthermore, collaborating with suppliers shouldn’t be restricted to existing business relationships. Engaging with new suppliers during the award process affords them the opportunity to present all their advantages in addition to pricing. Understanding what’s available in the market, and the options at your disposal, enables procurement to be faster and more agile when a need arises.
At the end of the day, supplier relationships are still driven by human emotions and decisions. Although enabling technology and automation are important for sourcing success, the process that you create determines if those technologies are helping to enhance those relationships and maximize value for all involved.