Just a couple of years ago, supply chains were heralded as the pinnacle of human organizational achievement, with networks of dazzling complexity crisscrossing the world to get goods, components and raw materials where they were needed “just in time.” But in building systems that extracted the last drop of efficiency from every stage of the chain, it was always suppliers that felt the squeeze.
Now it’s clear that we need a root-and-branch reimagining of supply chain models, to ensure that global trade can survive future crises like the one we’re enduring today. Digital transformation will play a central role in this process, enabling businesses to automate processes, boost efficiency and squeeze new value from deeper and more transparent relationships with their supplier base. But no amount of digital wizardry will be effective if they’re not founded on strong human ties that are based on trust, transparency and a shared vision of how to create long-term value.
Following are these four steps that business can adopt to create partnerships that are more resilient, valuable and mutually beneficial for years to come.
Outline objectives for supplier engagement. What do you need from potential suppliers? What goals do you hope to achieve? How will you measure whether your relationship is successful? It’s imperative that you find answers to questions like these — often called supplier requirements — at the start of the partnership. This information needs to be available to both your internal and external vendors, as it enables potential suppliers to self-evaluate and determine if they're a good fit for your organization. Strong, communicated supplier requirements are not only the first step of a great relationship, but set the bar for transparent communication and compliance over time.
Choose the right suppliers. This one might obvious, but too often organizations select suppliers solely on the basis of cost. While that will always be a key consideration, there are many other factors that will affect relationships over the long term. They include quality, industry accolades or awards, endorsements, and reviews. Also important is due diligence, which includes spotting any legal issues or reputation considerations that could cause problems down the line.
That’s why it’s worth reviewing your use of requests for information, proposal and quotation. This is your opportunity to submit prospective suppliers to a searching examination to ensure they’re the right fit for your organization’s ambitions — and, indeed, for each other. Make sure you analyze suppliers’ strengths and weaknesses, pay careful attention to the external environment, and factor in anything that could affect your engagement with the supplier over the long term.
Negotiate, negotiate, negotiate. Having chosen your preferred suppliers, it’s time to talk turkey. Nothing should be off the table, whether it’s discussing responsibilities, expectations, price points or contract terms. Take time to ensure that both parties see benefits from the agreements, and where each can derive lifetime value from the relationship. Once you've carefully crafted your requirements, it's time to get your suppliers on board.
All stakeholders from your supplier and your own organization should be present during this process. This is especially important if your current supply chain is far removed from the day-to-day user. For example, if C-level executives or a specific department handle your company’s contracts, make sure to include them in the conversation for added insight and ideas for getting more value out of your supply chain.
Evaluate ongoing performance. Good relationships don’t end after the first date. Neither do good supplier relationships.
If you’ve built your needs for selection, negotiation and onboarding with mutually beneficial goals in mind, your relationships should be positioned for the long haul. Ongoing evaluation enables you to make sure they remain so.
Are they meeting your objectives and requirements? Do both parties see value from the relationship? Or have you noticed your supplier dropping the ball and failing to fulfill their promises? Maybe your supplier relationship is worth revisiting, but you can only do this effectively with key performance indicators that are structured and consistent over time.
Smart organizations never let a crisis go to waste, but today’s seized-up supply chains represent something different, requiring radical solutions from the entire industry. If there ever was a time for the global supply chain to pull together, it’s in the middle of this seemingly endless pandemic. The old supplier relationship models have failed, but we are “just in time” to fix it. The first step must be to strengthen the bonds between buyers and suppliers, so that we can face the future stronger, together.
Christophe Bodin is chief revenue officer at Tradeshift.
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