Supplier Relationship Management: Achieving Supplier Satisfaction
Supplier satisfaction is critical to your success. By this we don't mean your satisfaction with the supplier and its performance, we mean the supplier's satisfaction with you and your performance.
Why is this so critical? Ultimately, your success depends on your supply chain's success, and the success of your supplier's. Think of all the major product and service lines you sell. How many of these could be truly successful without top tier support from a key supplier? The answer is, if you haven't figured it out already, 0. Even if you are a consulting organization offering pure IP services and delivering only talks, workshops, and paper, you are still depending on one more suppliers to do that. Either couriers to deliver the paper or the internet provider to deliver the email. If they fail, you fail. And if you are delivering products, or product-supported services, you are relying on many more suppliers and sometimes relying on them 100%.
So why do your suppliers have to be satisfied when, theoretically, as a big important buyer you could just give your business to someone else? Because, in reality, you often can't -- at least not quickly. Think about it. Even if there are three other suppliers who can supply that more-or-less commodity item - they need to be qualified and contracted, then they need to produce and ship, and then it needs to hit your store rooms or shelves. Depending on the category, that is weeks to months. If it is a custom manufactured product, it could take weeks to months just for a new supplier to setup and configure a new production line.
Basically, for strategic products and services, which, to be honest, include any products or services that cannot be interchanged with products and services from another on-contract supplier as-is, your organization is ultimately dependent on one or more supplier organizations, and their performance is your performance. And that, in a nutshell, is why you need them to be satisfied.
Quality, on-time delivery, and product/service support are entirely up to your supplier, whose personnel are overworked, whose carriers have limited capacity, and whose attention is being simultaneously requested by all of their customers, including your competitors. If you want to be sure that, when time is crunched, it's your product shipment that is subjected to the expected (and contracted) quality tests, it's your product shipped out on time, and your support calls that are answered, you need to be a customer of choice. And the only way to be a customer of choice is to be a customer that the organization is satisfied with. It doesn't matter how much you spend, it doesn't matter what language is in the contract, and it doesn't matter how important your customers are. If the supplier doesn't like you, you're not a customer of choice.
This is becoming especially critical now that your chance of not being subject to a supply chain disruption in any given 12 month period is 10% or less, now that news stories about not only lack of quality (testing) but faked quality tests are becoming common, and now that complex products are requiring more support from the supply base.
So how do you satisfy a supplier?
While it's difficult to give a hard and fast rule that will work in all cases, starting with the following three recommendations will go a long way to satisfying your supplier and making you a customer of choice.
1. Pay on Time
And, more importantly, pay on time under reasonable payment terms. Even if the locality will let you get away with 60, or even 90, day payment terms, don't do it. Just don't. Chances are your supplier has a worse credit rating than you, has less cash in the bank, and if they have to borrow, has to borrow at a higher rate than you. So pay them in 30 days, or less, every single time. You'll be pleasantly surprised how far this alone will put you above the average customer.
2. Create 360-degree scorecards, listen to feedback, and implement corrective action plans internally as well
Think about it. Would you like to be constantly assessed, compared against your peers, and forced to undergo corrective action plans without ever having the opportunity to provide feedback? Would you feel it fair if every time something went wrong, you were always assumed to be the root cause and you had to do all the work? You wouldn't -- and your supplier feels the same way. Make them a part of a complete, open, and transparent process where, if you determine that you are partly to blame for a failure, you force your people to undergo a corrective action process and to create a plan to do better. Even if your organization struggles to improve, this will still earn you a deep respect from the supplier who will, in turn, be willing to give a bit more since you do.
3. Create, and undertake supplier development plans regularly
Chances are your organization is a more mature organization in Procurement, project planning, lean implementation, six sigma analysis, and so on. And, chances are, your CFO is demanding cost reductions even when raw material prices are going through the roof, currency conversion is not in your favor, and oil, and thus fuel prices, are insane. The only way you are going to get those savings is if the supplier becomes leaner and meaner and reduces production costs. Chances are that your supplier needs help to do that. So, if your organization is the one to help them, they will be forever in your debt -- or at least in need of your services, again making you a preferred customer as they will be more than satisfied with your performance as a customer.
The reality is that it's usually not that hard to keep your suppliers satisfied. It just takes fairness, a bit of effort, and the willingness to work together to make both parties better. So go and satisfy your suppliers. Your customers will thank you for it.
Michael Lamoureux - Lead Analyst and Futurist
The doctor of Sourcing Innovation (.com), who holds a PhD in Computer Science, is an experienced professional in enterprise technology and Supply Management who has been a Chief Architect, Chief Research Scientist, and Chief Technology Officer before taking up the mantles of blogger and analysts. He works with businesses and their internal knowledge transfer, positioning, and planning problems, specializing in working with clients who want to update their sourcing process, technologies, and strategies to lead the way in innovation.