The role of strategic supplier partnerships in the supply chain

The role of strategic supplier partnerships in the supply chain

Do you have strategic suppliers? If so, are they truly treated like partners? In this article, you’ll discover what happens if you don’t form strategic partnerships and what the alternative is. You’ll also find several tips for managing strategic supplier partnerships and discover the role rebates play in strategic supplier relationships.

What does the term strategic supplier really mean?

How do you define a strategic supplier? A strategic supplier could be a supplier who is strategic (i.e., they perform a strategic function) or a supplier you have deemed valuable to your strategy.

That’s great in theory. In reality, though, the strategic nature of supplier partnership varies significantly.

  • A strategic supplier could be someone who delivers critical goods, materials, or services on which an organization depends.
  • A strategic supplier could also be essential to strategic growth, regardless of how often they are used or engaged with.
  • Strategic suppliers can also be treated more like partners. In this strategic supplier relationship, collaboration is king.

Regardless of how you define a strategic supplier, they are core to a company’s business success.

What is a strategic supplier partnership?

When does “the connection existing between an organization and its suppliers,” as one academic source calls it, become strategic? The Cambridge dictionary says a strategic supplier partnership is “an arrangement between two companies or organizations to help each other or work together, to make it easier for each of them to achieve the things they want to achieve.”

Yet another, possibly more helpful, way of thinking about supplier relationships is to divide them into categories. In his book, Slow Down, Sell Faster! Kevin Davis suggests we consider suppliers in one of three ways: As an approved vendor, a valued consultant, or a strategic partner.

Approved vendors provide acceptable prices and service levels. Valued consultants go further: Exchanging information and sharing knowledge. Strategic partners, however, don’t just deliver a product or service. Davis says they can help your company “see the future faster and in a new and different way.”

McKinsey’s research shows that companies with advanced supplier collaboration capabilities tend to outperform their peers. So, what’s stopping you from taking supplier collaboration to the next level? And what happens if you don’t form strategic partnerships?

What happens if you don’t form strategic supplier partnerships?

Strategy is important, nay, critical to any organization looking for long-term survival or growth. But any strategy is only as strong as its execution. In The Strategy Book, the author, Max McKeown, says strategy enables a business to answer these questions:

- What do we want to do?

- What do we think is possible?

- What do we need to do to achieve our goals?

- When should we react to new opportunities and adapt plans?

When you and your suppliers are part of a strategic partnership, these questions become easier to answer.

However, if you don’t form strategic partnerships, the relationship is more likely to be transactional than value-adding. That’s not good for anyone in the supply chain.

Without strategic partnerships, any vision or strategy becomes nice-to-have rather than essential. When strategies are not shared, parties tend to work in opposition rather than in collaboration. Communication suffers. Planning efficiency reduces. Partners tend to invest less time, effort, and money. As a result, risk increases for both parties, and reward diminishes accordingly.

Partnerships for mutually-beneficial growth

There is an alternative: Seeing supplier partnerships as a source of mutually-beneficial growth.

In an article in SDC Executive, Costas Xyloyiannis states that strong supplier partnerships are key to sustainable procurement. He says, “By clearly communicating to suppliers what your goals are, and what you need from them in order to achieve these goals, you will set them up for success.”

Maureen Barsema agrees. Goals that work for both parties are key, as is communication. Writing in Global Trade Mag, she says, “One of the most critical elements of any healthy relationship between supply chain partners is alignment on goals, delivery schedules, volumes, operations, and a range of other issues.”

However, to truly put suppliers at the heart of your business, it’s necessary to think of both parties as equal and equally important in the relationship. Removing friction by having reliable data goes a long way toward improving communication, trust, and effectiveness. Safely stored, easily-accessible supplier agreements go a step further. Being able to negotiate deals more smoothly and, as a result, more regularly further strengthens relationships. None of this is possible without the right tools.

Identifying strategic suppliers and managing strategic supplier partnerships

Not every supplier will be considered strategic. To identify your strategic suppliers, it’s helpful to start with supplier segmentation, then ask if they help you provide a competitive advantage in the marketplace. If the answer is yes, they are strategic suppliers.

After that, these steps (as recommended by TechTarget) will help you manage strategic supplier partnerships.

- Be sure the supplier knows you consider them a strategic partner

- Define the objectives of the relationship, collaboratively

- Align the needs of internal and external stakeholders

- Seek first to understand before wanting to be understood

- Get feedback from your suppliers

- Build trust between all partners

- Consider further investment for mutual benefit and

- Do your due diligence.

It’s also vital to monitor supplier performance and step in as soon as discrepancies are noted, to resolve challenges before they become significant issues.

Benefits of a strategic partnership

Incredible things happen when companies’ and suppliers' relationships shift from transactional to strategic. Amongst other benefits such as improved communication, trust, resilience, collaboration, efficiency, and profitability, parties start to think creatively and leverage innovative deals, such as rebates, more frequently.

When rebates move from an afterthought to a strategic business tool, previously discordant relationships start to mend. The solid, trustworthy data from a strategic rebate management solution creates a foundation to evolve business strategy. As a result, the potential of strategic supplier partnerships can be explored more fully.

This shift in mindset may not happen overnight, but organizations that begin seeing their suppliers as strategic partners start to realize the us-them mentality is a useless construct. The only way forward is a collaborative, mutually-beneficial effort to serve customers. In doing so, organizations and their suppliers see the world differently – one in which their joint effort creates more meaningful contributions and, potentially, better results for all.

The role that rebates play in strategic supplier partnerships

Maureen Barsema says, “As part of strategic pricing, rebates can help companies address consumer demands, mitigate risks, and forge stronger relationships with one another.” Kerry Atlas, VP of Finance, IT & Operations at NetPlus Alliance, has seen this first hand since using rebate management software.

“I recognized when I joined NetPlus, that without a rebate specific software, it was difficult to be able to expand the depth and breadth of our rebate offerings. Now we’re able to allow our supplier partners to go to market the way that it’s most beneficial to them…
That has been a huge change with Enable because now we're able to expand the depth and the breadth of what we're able to offer them. So, from a development perspective and from an accounting perspective, it's been a real win for us.”

– Kerry Atlas, VP of Finance, IT & Operations, NetPlus Alliance

We’ll conclude with Maureen Barsema’s words: “When you’re equipped to model, forecast, and track rebates with your trading partners, you’ll be in a strong position to maintain customer loyalty while reducing the chances of disputes that can undermine your relationships.”

If you think that’s something worth striving for, get in touch.

Elizabeth Lavelle

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