7 Factors to Consider When Forming a Supplier Partnership
In the fast-paced supply chain, forming strategic partnerships has become an essential component of sustained growth and competitive advantage. Among these collaborations, supplier partnerships hold a crucial role in shaping the efficiency, quality, and overall success of an enterprise. Whatever stage your business is at the choice of suppliers and the nature of your partnership with them can profoundly impact your operations and bottom line. From fostering transparent communication and assessing reliability to understanding your supplier's ethical practices and anticipating potential risks, there's a lot to navigate. In this article, we'll delve into the seven key factors that should be at the forefront of your mind when entering into a supplier partnership.
1. Pricing vs quality
Suppliers must offer a fair price for the product, but it is good practice to always negotiate. It is worth considering that low price does not always mean low quality, just as a high price does not necessarily indicate a high level of quality. If the quality of your supplier's product or service is poor, you will inevitably incur extra costs for your time, returns and replacements. You will also risk losing business with any delays that result. If you decide to pass poor quality on to your customers, you risk damaging your business reputation for the long term. Find a balance between price & quality when forming a supplier partnership.
2. Use of technology
How suppliers utilize technology can provide good insight into their flexibility and ability to adapt to new opportunities. For example, rebate management software with built in collaboration can facilitate the information exchange between parties to allow more time to focus on future strategic opportunities and risks surrounding your deals.
Make sure that your supplier partnership has the capacity to scale and deliver in line with your projected future requirements. For example, determine how flexible the supplier is when it comes to providing small quantity and high-volume orders. If you grow to require extremely large shipments of the product over time, you could quickly outgrow your original supplier selection. Knowing what the growth pattern is for the product you are sourcing before selecting a supplier will allow you to form a supplier partnership that can scale to meet your changing requirements.
4. Trust & stability
Strategic sourcing and procurement recognize the importance of identifying and mitigating potential risks in a supplier partnership. Always make sure your supplier is trustworthy and look for experienced suppliers who have been in business a long time. It’s in your best interest that your supplier stays in business to prevent disruptions to your operation. Do your homework and check each vendor’s financial health and stability before doing business with them long-term. The reputation of its supplier can sometimes be decisive in the final customer’s purchase decision.
5. Supplier performance
The last thing you want to do is to form a supplier partnership with someone who is unreliable. Make sure you pay attention to their performance. You need to know that the supplier you’re working with will be able to provide the level of service your company needs. If the supplier keeps delivering orders late or low-quality, these are red flags.
6. Communication and accessibility
Almost two-thirds (64%) of enterprises don’t have strong communication channels in place with suppliers, according to a survey by HICX. This reiterates the importance of clear communication channels when proactively seeking a supplier partnership. The best suppliers take the initiative to talk to you regularly in order to determine ways to serve you better and support your long-term goals. You need to be certain that when you call, you’ll get an answer within a reasonable amount of time. The last thing you want is to have any disruptions because of a lack of communication.
The location of the supplier can have a significant impact on how you work with them. If your supplier is in a different country than you, this can offer potential cost savings, however they are not the right choice if you require small quantities, short lead times or flexibility. With the ongoing disruptions to the supply chain and material shortages it may be worth looking locally for a supplier partnership. For example, according to Thomasnet, 83% of manufacturers said they intend to find North American suppliers in 2021 — up from 54% before the pandemic lockdowns of 2020.
Rebates bring supplier partnerships into alignment
According to Gartner, 77 percent of companies are investing in supply chain collaboration – a move that will make it easier to coordinate responses to future disruptions, increase efficiency, and eliminate redundancies. One strategy for creating more productive supplier partnerships across the supply chain is to develop coherent and flexible rebate strategies. Because pricing is always in a state of flux and demand is liable to change at a moment’s notice, rebates are necessary to bring everything into alignment with reality and to make supplier partnerships more sustainable.