The value of improved supplier relationships

In the business world, understanding about the importance of good supplier relationships has increased markedly over the past decade. More and more organisations are seeing the value of investing time and resources in building a solid foundation of respect, collaboration and mutual benefit with their suppliers. A wide range of soft (perceived) and hard (measurable and quantifiable) benefits can be traced back to companies’ investment in supplier relationships, including increased operating efficiency, better profit margins and boosted brand perception.

It’s important to understand that when I’m talking about building relationships with suppliers, I don’t mean directors playing golf together. Rather, it’s about a concerted effort by everyone who deals with suppliers to understand what motivates them, and to connect with them meaningfully and personally. It’s about continuously and consciously making your organisation one that suppliers are happy to work with, then reaping the ongoing benefits. It is what we at S4RB call ‘supplier engagement’.

Nowhere are healthy supplier relationships more important than in private brand retail. To create compelling and competitive private brand products, retailer teams must work closely and collaboratively with their suppliers. It takes dedication on all sides, and suppliers need to be just as committed as the retailer to developing consistent, quality, competitive products on time and on budget.

What the numbers say

A recent survey* has helped to quantify some of the claimed benefits of greater supplier collaboration and of building positive business relationships.

Retailers with supplier-focused programs in place were asked questions about the changes they have observed since their programs were introduced:

  • over 60% of respondents said they had seen a reduction in their costs
  • over 50% have seen their suppliers become more responsive
  • 38% have noticed a general increased commitment amongst suppliers (an increase in what you might call ‘going the extra mile’)

In addition, 45% of respondents had seen an increase in proactive suggestions for continuous improvements from these engaged suppliers, and the same group noted that they were now getting products to market faster than their competitors.

There’s more work to be done

Supplier engagement has been seen time and again to improve the efficiency and effectiveness of retailer-supplier interactions. It’s a way of working that allows businesses to generate higher profits, to innovate more effectively, and that equips them to manage risk better.

To put it another way, supplier engagement helps unlock suppliers’ full potential. If you think about it, suppliers are specialists with a wealth of knowledge and expertise that could be leveraged to give your brand that all-important competitive edge. So, an important question that private brand retailers should be asking is: what else can we do to improve our supplier relationships?

Ultimately, the answer boils down to finding ways to increase your suppliers’ understanding, thus enabling them to do their best work for you, and to grow their motivation, giving them good reasons to deepen their partnership with you. A great place to get started is to consider what you could do differently in three key engagement areas: communications, support and transparency:

  • Keep communication channels open. Make a habit of communicating valuable information, expressing gratitude for good work, and following up supplier queries promptly. All of this helps build up the familiarity and trust your suppliers have in you, giving them extra motivation to bring their A-game when dealing with you.
  • Be surprisingly supportive. Many suppliers are used to being beaten down on price, penalised heavily for slip-ups, and to generally being taken for granted. It’s much less often that retailers take the time to provide them with support to do a better job. There are some very practical tools that can help here, such as supplier self-help.
  • Share as much as you dare. In other words, be transparent. The more suppliers know, the more effective they can be. The more they know about how you think they are performing, the sooner they can take action to improve. In addition, if your suppliers were aware of the challenges facing you, they might well be able to volunteer a valuable contribution.

As a private brand retailer, suppliers are one of your most valuable assets, and very possibly one of your biggest un-tapped resources. The time you take to work on your supplier relationships certainly won’t be won’t be wasted – in fact, it’s time you can’t afford not to spend if you want to stay competitive.

*State of Flux 2015.

Tags: Supplier development, Supplier engagement

Team S4RB

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