When you’re busy growing a business, it can be easy to focus on day-to-day operations and let the big picture take a backseat. For many buyers, this can see them taking their suppliers for granted and expecting them to deliver more, without first building the foundational relationship to support it.
Due to COVID and the subsequent pressures placed on supply chains around the world, things are changing. More and more businesses are recognising the benefits – and the necessity – of strategic buyer/supplier relationship management. The stronger the relationship between your business and its suppliers, the easier it is to negotiate, meet your customer’s needs and seize opportunities that will help you grow together.
This article will look at why it’s critical for businesses to go beyond building efficiency and cost-effectiveness into their supply chain, and invest in fostering stable, reliable supply chain relationships.
A close supplier-customer relationship is a win-win
While a business is always focused on the customer, in a relationship between a business and their suppliers, it is about much more than the buying transaction alone.
From navigating problems together to striking stronger deals, taking the time to build a longstanding relationship is in both of your best interests.
Rather than one business holding the balance of power, this is instead shared across both parties as they reap rewards from the mutually beneficial relationship.
It’s more of a human relationship, as opposed to a transactional one.
The risk of a one-sided business relationship
Although a close supplier-customer relationship is ideal, there are businesses that struggle to recognise and respect this arrangement. To combat this, the Australian Government officially introduced the Payment Time Reporting Scheme (PTRS) in January 2021.
Recognising the imbalance of power between small businesses and the large corporations that pay them, this scheme aims to facilitate greater transparency around payment times. It also helps to create incentives to improve payment times and practices to encourage cultural change. This cultural change focuses on a ‘people centric’ approach, where suppliers are treated fairly and paid on time.
Fair treatment and on-time payments not only improve the relationship, but businesses who fail to pay on time risk serious reputational damage. Recently, companies like Visy, Cleanaway and Coles Liquor took longer than 30 days to pay suppliers. Reports of their actions brought consequent damage to their reputations.
This highlights the importance of being transparent about and managing your financial supply chain. It also highlights the effectiveness of using fairly-negotiated early payment discounts as an incentive and tool to build relationships. Businesses that do this create better relationships with their suppliers, ultimately offering an added cash flow benefit to their client rather than a default payment choice.
It’s about the intention behind the incentive.
Good relationships are worth the investment
Beyond regulatory and reputational risk considerations, businesses that foster close supplier-customer relationships have a lot to gain. Building these relationships by taking the time to get to know your suppliers, their business goals and the way they operate, can bring a host of benefits.
- making often complex negotiations easier
- the ability to secure better deals
- reducing quality control issues and delays
- supporting new product or sales initiatives
- improving efficiency
- enhanced customer service.
Together, these benefits can create a hard-to-replicate competitive advantage. They can touch multiple areas of your business and highlight the role of your supplier as a strategic partner. With solid relationships in place, your business is better positioned to adjust to changing customer needs, take advantage of opportunities, and ultimately, grow.
How to build business relationships with suppliers
There are several ways to improve your relationship with suppliers and set the foundations for a long-term partnership, apart from discovering how supply chain finance works.
Choose suppliers with values that align to yours
Building strong relationships tends to be easier when you work with businesses that have values that align with your own. A lack of alignment on values can lead to miscommunication and conflict. This impacts not only your supply chain, but also your relationship with your customers.
For example, perhaps your business has a strong environmental focus. Working with a supplier that can support recycled packaging for products and adopt eco-friendly manufacturing would be a good fit. Partnering with like-minded businesses helps you demonstrate your commitment to your values and builds trust with your customers.
Maintain clear, consistent communication
Communication between different parties is critical across your business, and your supplier relationship is no different. Clarity and transparency help build shared understanding, trust, and a smoother partnership. It also helps reduce misunderstandings, delays and errors which can significantly impact your processes and customer service.
To foster clear, consistent communication, consider:
- What tools or tech will you be using to communicate? Are they easy to use and accessible by both your staff and your suppliers?
- Is everyone clear on terms, turnaround times, and quality standards? Ensuring everyone is clear at the outset can avoid potential issues down the track.
- How often will communication occur? What is the process to communicate when things go wrong?
- Is communication two-way, with the opportunity to proactively share issues or information? How can you make communication an equal process?
Consider cultural differences
With the ongoing growth of global supply chains, being mindful of cultural differences is now a big part of doing business. It helps to avoid misunderstandings, build good rapport, and strengthen goodwill.
If you’re working with suppliers in countries you haven’t previously worked with, it helps to do your homework and background research. Another option is to work with an experienced local consultant to help you through the process.
It’s important to build rapport by understanding cultural sensitivities, communication styles and business practices, so your supplier knows that you’re committed to the relationship.
Establish clear processes
Unclear and complicated processes can cause major issues to supply chains and relationships, especially when it involves finance. On the other hand, clear, streamlined processes mean fewer errors, issues and less miscommunication on both ends.
Good processes help build strong relationships by ensuring everyone is clear on who’s doing what and when. They help facilitate on-time delivery, prompt payments and high quality standards. Exploring different automation options and digital platforms can be a valuable investment in this space.
For some businesses, the pursuit of the best deal and the lowest costs is a major driver. And when they find a better option elsewhere they’ll switch, often with little thought to their supplier.
Smart, successful businesses understand that price is not just about the cost, but also about the value a supplier can bring to the table. Good suppliers that are responsive, flexible, offer great quality and suitable shipping times may cost higher upfront, but ultimately save you more in the long run.
Rewarding suppliers with loyalty and respecting the mutually beneficial nature of the relationship is a powerful way to strengthen key relationships.
Despite the rapid digitisation occurring across almost every industry, buyer-supplier relationship management remains a key component of doing business – and succeeding in business. Getting this right not only makes day-to-day operations easier but also improves your business’s long term success.
By recognising the dynamics of the buyer-supplier relationship and nurturing a people-driven, partnership-focused approach, you can build a unique competitive advantage. This will help your business grow in an increasingly complex and unpredictable environment.
Interested in building stronger relationships with your suppliers? Get in touch today to discover how we can help.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.