Buyers have been told that they must establish C-suite relationships with key suppliers to ensure security of supplies.
Businesses must do everything possible to become the “customer of choice” of their key suppliers as global supply chain issues persist for a third year, says international procurement and supply chain management consultancy Inverto.
As businesses battle record inflation, the ongoing consequences fo Covid-19 and Russia’s war in Ukraine, Inverto principal Lina Tilley said: “Becoming a customer of choice for your key suppliers is now more valuable than ever. Increasingly, it can now be the difference between being able or unable to fulfil orders.”
Tilley noted that supply shortages worldwide have left some suppliers unable to serve all their customers, even when offered higher prices. This risks less preferred customers being “put at the back of the queue” for integral supplies.
Consequently, firms must evaluate why they are not the preferred partner of their supplier, and establish strategic relationships to supply security.
Businesses should follow four key steps to become “customers of choice”:
1. Build relationships at C-suite level
Tilley said: “If a supplier is a critical one, then it’s critical for the whole business, not just the procurement team.”
Consequently, it is important to engage C-suite and ensure they are involved in the relationship, engaging with the C-suite team at the supplier. “Having strong relationships at that level means greater security for both sides,” she said.
“Over the last two years supply chains have become a board-level issue for a significant number of businesses. It’s not sustainable for C-suite leadership to treat them as an issue mainly for the procurement team. They now have a clear role to play in ensuring security of supply.”
2. Get the most out of the relationship
Relationships between suppliers and customers need to be a “true partnership” to allow suppliers to gain the most out of the relationship as well.
This requires clear, consistent and open communication. Tilley said “this makes your business more likely to be treated as a customer of choice”.
“Customers and suppliers can look to work together on innovating new products and pooling funds to do so. They can also develop ways to use alternative inputs where the usual materials are in short supply. Many supply markets are changing rapidly and the best way to access this is close collaboration with the supply chain.
“Working in partnership could also involve being more flexible on pricing than in the past – few suppliers will prioritise working with a customer who is unwilling to share some cost risk. For some suppliers, a fixed-price contract simply isn’t going to work given the cost pressure and volatility they themselves are facing.”
3. Pay invoices on time and be operationally efficient to deal with
The key – and overlooked – way to build solid relationships with suppliers is to be “operationally efficient” to work with. And this includes paying invoices on time.
“It might seem simplistic to say customers should always respect the agreed payment and delivery terms. But over the last 15 years it has been common for many suppliers to see standard payment terms drift out from 30 days to 60 or 90 days, and still being paid only after a reminder.”
Using multiple work systems and work-intensive supplier management processes will “significantly increase a supplier’s day to day workload”, making firms less attractive to work with.
“Creating processed and interface systems which are as efficient as possible has a positive impact across the whole supply chain, and not just for a company’s most strategic suppliers.”
4. Ask your suppliers what they want from the relationship
Tilley stressed again that communication needs to be at the heart of buyer-supplier relationships.
“Opening an honest dialogue with your key suppliers about what they are actually seeking can help. Some suppliers will be happier to secure a longer agreement that gives them certainty over their income for the long term.
“Others would prefer to agree pricing with customers that can vary based on their own costs. Understanding your suppliers’ motivations is a good start in building a relationship where your business is treated as a priority by a supplier,” she said.
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