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Supplier Relationship Management: The 5 Golden Rules


In these difficult times, it is more necessary than ever to maintain regular contact and create a good relationship with your supplier.

Although often put aside, a good supplier relationship is a major growth driver, essential for the growth and success of your business. In this article, we will give you the golden rules to follow in order to establish a healthy, lasting, reliable and high-quality supplier relationship.

What is Supplier Relationship?

Any type of business needs suppliers to ensure every step of production and the supply of articles, goods or services that are meant to be transformed or used. These suppliers play an important role: they serve as an essential intermediary.

The supplier relationship is defined by the relationships that a business has with each of its suppliers. It is based on:

  • Mutual trust (with made agreements, observation of deadlines and payments, etc.).
  • Durability.
  • Quality interactions (regular contact).
  • Constant listening and attentiveness (production schedule).
  • Financial terms (payment for invoices).

Therefore, it is important to keep a healthy and cordial business-supplier relationship to ensure the smoothness of your business and logistic processes. The biggest reason for this is to achieve maximum customer satisfaction, a key factor for any business wishing to grow.

The effective implementation of Supplier Relationship Management (SRM) is a strategy that can significantly enhance these relationships. By adopting consistent and structured supplier relationship management practices, a company can optimize its overall performance and strengthen its market position.

supplier relationship

Rule #1 : Identify reliable suppliers

Before making a selection, supplier  “sourcing” is essential to obtain information about future suppliers: are they reliable?

By contacting their clients or by browsing reviews online, you can get a first glimpse of their practices:

  • Quality of products and services delivered.
  • Observation of production and delivery deadlines.
  • Geographical distances.
  • Price competitiveness.
  • Order tracking.
  • Etc.

Having one single supplier for all of your supplies can be risky, especially if your supplier happens to run into inventory, delivery or production issues. Diversifying suppliers allows you to rely on another one if one of them is facing issues.

Then comes the negotiation part. Both parties must take advantage of it. Set your conditions: what are the criteria and demands that are not negotiable? To what extent are you willing to make concessions? Good supplier relationship management involves creating partnerships where each party benefits, thereby enhancing supply chain performance and overall satisfaction.

Rule #2 : Use official conventions

In addition to the contract, it is crucial to put in writing clauses that will safeguard your goals:

  • Financial clause: to pay and be paid in time.
  • Legal and contractual clauses: compliance with the Law, transparency of termination conditions, potential non-disclosure clauses, sanctions in case of dispute.
  • Operational clause: observation of production and delivery schedule, quality of products and compliance of services.

A supplier charter to ensure responsible practices

In the United Kingdom, the Home Office and HM Revenue & Customs published a Policy Paper known as the Supplier Charter, which refers to all Corporate Responsibility issues for wider environmental, social and economic policy objectives. It embeds responsible practices through the supply chain for businesses and serves as a template for any British company.

Other codes exist

Any business is free to instate a supplier Code of Conduct or Code of Ethics, a widespread practice in the UK and in the US (for an example, click here). These codes will include the company's shared values, policies and practices with its suppliers, such as promoting corporate social and environmental responsibility. Codes will also include responsible sourcing, health and safety, and so on.

Rule #3 : Create mutual trust

Signing a contract with specific clauses is essential but it's not always enough to prevent potential risks in production or delivery. As a buyer, you need to be attentive and willing to renegotiate your terms in order to adjust to a whole new situation.

What's more, recommending a trusted supplier to one of your clients or partners can greatly improve your supplier relationship. This creates a win-win situation for every party through the sharing of network, influence and reputation between one another. Later, you could even take advantage of this by asking to renegotiate your supplier contract to your benefit!

Establishing mutual trust goes beyond just signing contracts; it involves building a partnership where both parties can grow together. Encouraging effective collaboration and communication between businesses and suppliers can lead to improvements in product and service quality, delivery time management, and overall satisfaction. This strategy helps create a robust supply chain, where honoring commitments and being flexible in the face of unforeseen changes are top priorities.

Rule #4 : Favor quality dialogue

Have a discussion with your supplier on a regular basis to stay updated with their current situation, issues or failures they might be facing. This will allow you to anticipate the majority of problems and implement solutions and strategies in full collaboration. Cooperation and dialogue will be a major boost for mutual trust and the smooth operation of your business.

Always tailor your communications to suit your recipient (different business sizes will have different needs). Try to set up face-to-face meetings as often as possible for more pleasant and constructive discussions. And when you chase up your supplier, anticipate and get in touch with them in person (whether it is on the phone, video call or face-to-face). Finally, use tact and diplomacy, all the while standing firm.

These practices not only strengthen supplier relationships but also help build a resilient and responsive supply chain. By fostering quality dialogue, you create an environment conducive to collaboration and optimal performance, which ultimately reflects in the quality of products and services delivered and the overall satisfaction of your customers.

Rule #5 : Manage your inventory and know when to reorder

Good inventory management (which goes hand in hand with good organization!) will allow you to reorder at the right time and avoid being overcome by panic which would be a nightmare for both you and your supplier. You can organize and manage your inventory thanks to:

  • A safety stock (and reorder point);
  • A real-time view on your inventory;
  • Reporting and analysis tools;
  • Automation for the creation of your documents.

A good inventory management software will help you automate these features. You will save time and protect your supplier relationship.

supplier business contract

In conclusion, a healthy supplier relationship is based on transparency, lasting trust, regular contact and business cooperation that benefit both parties. This creates an essential partnership that rests on active communication.

Today, there are many solutions to facilitate discussions with your suppliers and save time, particularly using automated invoices and sales orders. With Erplain, in just one click, get orders, quotes and invoices. Manage your inventory in real time and anticipate supply reorders.

FAQ on Supplier Relationship Management

1. What are the key challenges in supplier relationship management?

Managing supplier relationships is critical for business success and involves several key challenges. Effective supplier relationship management (SRM) can directly impact the quality of products and services, supply chain performance, and customer satisfaction. Key aspects include ensuring timely deliveries, cost management, and risk management. A strong supplier relationship ensures efficient collaboration and communication, which are essential for quickly adapting to market changes and continuously innovating.

2. How can you improve supplier relationships?

To improve supplier relationships, it is crucial to implement a Supplier Relationship Management (SRM) strategy. This includes establishing regular communication, developing mutual trust, and creating strategic partnerships. Strengthening supplier relationships can be achieved through regular audits, performance evaluations, and maintaining transparency in processes and expectations. Encouraging joint innovation and sharing common goals can also strengthen bonds and optimize supply chain performance.

3. How do you form a partnership with a supplier?

Forming a partnership with a supplier begins with rigorous sourcing and evaluating the supplier’s ability to meet your quality, cost, and delivery requirements. Once a potential supplier is identified, it is vital to negotiate terms that benefit all parties involved. This can include agreements on risk and benefit sharing, long-term commitments, and risk management clauses. Clear and regular communication, along with performance management systems, are essential for maintaining and developing a successful partnership.

4. What are the two types of supplier relationships?

There are generally two types of supplier relationships: transactional and collaborative. Transactional relationships are usually short-term and focused on purchasing products or services under predefined conditions, with an emphasis on cost and efficiency. On the other hand, collaborative relationships are based on long-term commitments where both parties work together to improve production processes, product quality, and overall performance. These relationships often include elements of information sharing, risk and reward sharing, and strategies to achieve common goals such as sustainability and innovation.

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