Here are five steps you need to take to develop successful supply chain relationships:
Find suppliers with common goals
In order to be successful, you and your suppliers’ goals should align. For example, let’s say your company strives to be environmentally responsible. Perhaps you already are acting on these goals, or this is something you want to start. Then, the suppliers you choose should share this mindset. It will be difficult to partner with a supplier who does not have similar goals. Plus, it may be impossible to trust them to meet your objectives.
If the relationship is one-sided, suppliers may begin to feel undervalued. After all, they are not benefiting from any of your company’s goals. This will make them less willing to strategize or actively innovate for you, since there is no benefit for them. It is key that your actions are for the good of everybody, not just your firm.
For example, your company may be looking for a way to significantly reduce the waste in production. You may already be using a method that reduces waste, but want to push it even further. Your suppliers may not see the benefit of developing new waste reduction processes if they don’t see the protection of the environment as an important issue. This is why goal-alignment with your suppliers is the first step towards building successful supply chain relationships.
Visibility through real-time data
In the 1980s, Walmart and Procter & Gamble (P&G) pioneered supply chain collaboration through data sharing. It was a great success which increased their profits by $50 million in the first 8 months. This move took Wal-Mart’s store inventory information and translated it to P&G whenever shipments were necessary. As a result, saving P&G on both transit and labor costs. In turn, P&G was able to cater to Wal-Mart’s inventory requirements to stay properly stocked. This is a prime example of benefit for both parties.
In order to make the relationship with your suppliers collaborative, you need to provide access to your supply chain and inventory data. Collaborative cloud-based supply chain or inventory systems are able to do this through user roles. This allows your partner(s) to view real-time data, which will help them work with you to develop effective business strategies. In addition, real-time data will give both your company and your partner(s) the ability to accurately plan for the future by having the most up-to-date data at your disposal.
Strategic planning for the future
Are you able to strategically plan for the future with your suppliers? In order to do this, you both need to be in it for the long run. This increase in time allows your firm and your suppliers to develop innovations that benefit both of you. Plus, it’s no secret long term partnerships have stronger trust. Also, partners work together more closely and have a better understanding of one another. This environment fosters collaboration, which results in better strategies and processes. In addition, long term partnerships can standardize supply chain processes. As a result, this will reduce both partners’ overall costs.
Everyone should benefit
Your suppliers should have similar goals, but that doesn’t mean that they won’t have a mind of their own. There will be times where you and your suppliers have different ideas or opinions. After all, it is unlikely that you will agree on everything. For this reason, you need to make sure that the partnership is beneficial for all parties. This means that your company should ensure you are helping the supplier meet their objectives as well, and not just your own goals.
It’s no secret that every relationship will have some give and take. Supply chain relationships are no exception. When your firm tackles situations like this, try to turn win-lose situations into a win-win for both partners. This benefits both parties and ensures both partners will be invested in every endeavor.
Focus on a small number of suppliers
Trying to maintain too many supplier relationships can be a very difficult task. The more you have, the weaker your relationships will be. Think about it this way. You only have so much time to put in, it’s better to put it into quality than quantity. It is more beneficial for all if your company focuses on strengthening relationships by having a smaller number of suppliers.
With less suppliers, you can build trust and stronger ties. This is the best way to develop relationships. You can also quickly weed out suppliers who are not working towards common goals, do not give you visibility into their processes, and are not dependable. Together you can work to reduce costs, increase efficiency, and create innovative products or processes.
In 1995, Dell started developing its Direct Dell Model in which they cut down their suppliers from 204 to 47. By 1997, Dell’s efforts to develop collaborative relationships with their suppliers paid off. The company experienced rapid growth and $12 billion in annual sales. These partnerships helped Dell develop their competitive advantage and significantly reduce costs. This is one example of reducing suppliers in order to improve supply chain relationships.
Successful collaboration in the business world can be beneficial for both parties. But, it is not an easy task. In the context of a supply chain system, collaborating with different business partners can help mirror similar success. In conclusion, it will allow your company to not only be financially productive but also to grow as a whole.