Boosting Supplier Relationships Through Total-Value Sourcing
Sourcing leaders today operate within an intricate web of interconnected buyers and suppliers from around the globe. When awarding parts of a business, companies must weigh more than the cost of what they buy. Prospective suppliers have to be viewed through multiple lenses. Prioritizing cost savings alone may seem like a clear win for your bottom line, but it can lead to missed opportunities to capitalize on other forms of value that suppliers can extend.
Taking an integrated approach to managing supplier relationships can unlock deeper benefits for both buyers and vendors, including product innovation, quality, better service terms and adherence to corporate social responsibility commitments. In fact, new research from McKinsey shows that companies who regularly collaborated with suppliers demonstrated higher growth, lower operating costs and greater profits.
Build Your Supplier Partnerships
It’s ideal to facilitate an environment where suppliers can play to their strengths and build off mutual trust to further strategic sourcing decisions. But often, companies with the most spend are those with less time to advance supplier relationships. The sheer volume of work for procurement teams can inadvertently skew relationships with key suppliers toward transactional contracts rather than strategic partnerships. Essentially, they are putting money in place of time and joint effort. The better move is to enable a process where you can leverage your suppliers’ expertise and enable them to create value for you.
But how is that achieved?
Promoting greater strategic alignment may sound time consuming, but scalability is easily solved by implementing modern solutions that give procurement personnel back more of their time. Deloitte’s 2021 CPO survey found that, in order, CPOs are prioritizing operational efficiency, costs, digital transformation, innovation, and introducing new products and services. Supplier relationships are essential to all these goals – especially costs, innovation and new product introductions – and can be easily facilitated by working through digital transformation. It is extremely difficult to accomplish all five without utilizing automation, regardless of your purchasing power.
Rise to the Top
The best procurement teams engage the supply base to help find solutions that work for all parties, and leverage optimization and automation technologies to not only weigh the various tradeoffs of different scenarios but centralize supplier collaboration.
Here’s a great example: You may oversee sourcing of packaging materials for your company’s products, and you have the specifications from your internal spend stakeholders. As you include those detailed specs on your bid sheet to share with suppliers, you should also give suppliers the ability to submit alternative offers.
Perhaps one supplier can come close to those specifications but offer more recycled material in their packaging. Another may be able to bundle several items for a better price or payment terms. Yet another may be slightly higher in price, but they are a favored incumbent and also have greater capacity to handle more volume in a shorter timeframe.
The sourcing process should make it easier to capture such creative bids, and sourcing optimization software is designed to handle this type of automated data collection and scenario analysis on these different types of bids. Otherwise, procurement will miss the potential benefits that come from improving the bidding options for suppliers.
Remember, the race to the bottom is long over. Constantly asking your suppliers to do more for less is unsustainable for both parties. Going back to Deloitte’s survey, 56% of CPOs said they’ve had suppliers go bankrupt or been severely hampered in the past 12 months, and 32% say they are losing revenue due to supply shortages. 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 relationships driven by human decisions and feelings. While automation and enabling technologies are crucial for sourcing performance, the process you establish determines whether those technologies are helping to boost those relationships and at the end of the day, maximize total value for all involved.