Suppliers play a key role in your company's success. Yet it is common for a company to find itself in an adversarial relationship with suppliers; sometimes overzealous procurement departments consider it their mission to beat up on suppliers to get better prices or better terms. That is a very shortsighted way to do business.
Historically, companies focus strategic planning on the key customers who are critical to the success of the business. With all this focus on sales, do you miss the opportunity to evaluate your company’s position as a customer?
Instead of getting stuck on price, focus on quality of service and value proposition. A supplier can have the lowest price, but also the lowest quality of work. Your goal is to recognize the value-added services that a supplier provides to your company; that is the perceived value, and that is important to your business.
Make sure you have a system in place for evaluating, selecting, and continuously reevaluating the suppliers with whom you work. Have a formalized process in place. It is essential to the operation and profitability of your company.
Here are seven steps to rate your suppliers, track performance, and ultimately increase your company's overall success:
- Define perceived value. Clarify key attributes you are seeking in the supplier relationship, such as delivery rate, return rate, corrective actions, and financial stability.
- Rank suppliers. Divide your suppliers into levels (one, two, and three) based on the impact they have on your business.
- Establish performance indicators. Determine what characteristics a supplier needs to have, demonstrate, or maintain to continue doing business with your company.
- Monitor results. Establish criteria for evaluating suppliers and, most importantly, define who in your company will be responsible for reviewing data.
- Build relationships. Consider your suppliers a partner with your business and treat them as such.
- Address the issues. Share the outputs from your performance indicators and issue a warning, providing the supplier with an opportunity to correct the problem. This creates a win-win situation by helping suppliers identify a pervasive issue that impacts you and other customers.
- Sever weak links. No one should tolerate ongoing bad products or service, and there may come a time when you have to let go of an underperforming supplier. However, make sure you fully understand ahead of time the impact of the termination on your business.
The relationship with your supplier should be a business partnership, with both parties working toward a common goal and enhancing the relationship. In the long run, a solid relationship with your suppliers creates a competitive advantage for your business.