According to CSO Online, 94.3% of executives have low to moderate confidence in their third-party risk management technologies. And 88.6% have low to moderate confidence in their risk management processes.
Why is Supplier Relationship Management important?
“Supplier relationship management” is very much what it sounds like—the identification, selection, and overall management of the suppliers you do business with. Its core objective is to ensure that all contracts and transactions with suppliers support the needs and ethics of your organization. This becomes especially vital when you’re dealing with international suppliers.
The fears expressed in CSO online aren’t without cause. There are plenty of real-life examples where businesses have had to face the backlash of inefficient and inadequate supplier management. And, as mentioned in a previous blog, there are repercussions to doing business with the wrong suppliers, such as:
Supply interruptions or discontinuities
Critical technology failures
Ethical and humanitarian discrepancies
Financial failure and cash flow issues
But, at the same time, it’s equally as important for buyers to remain responsible, too. Not all faults rest solely on suppliers’ shoulders. If a buyer is unreliable, fraudulent, unethical, or unreliable on payments, a supplier could face similar consequences as those listed above.
But with proper supplier relationship management, you can achieve benefits like:
Greater visibility and predictability across your supply chain
Increased insights to better inform strategic business decisions
Decreased supply chain disruptions
Continuous operational improvements
Supplier Relationship Management Disasters
Let’s take a look at a few real-life examples of supplier relationship management gone awry. (Company names redacted.)
Example 1 – Late Supplier Payments
In this example, a Buyer has been publicly criticized for taking an average of 68 days to pay its Suppliers. Even though they established payment agreements, they failed time and time again to make prompt payments for as many as 60% of their invoices.
This sort of delayed payment behavior is not a new problem, unfortunately. Many companies like this Buyer lack the proper processes and systems needed to make payments on time. This delay left the Supplier in an uncertain supply chain position with delayed finances and broken payment agreements.
Example 2 – Contractual supplier relationships
About 5 years ago, a large global Buyer agreed to purchase a significant amount of product from a Supplier. Long story short, the Supplier’s product malfunctioned, and instead of coming together to strategically address the issue, the Supplier simultaneously tried to correct and continue producing the product. The Buyer failed to manage their contractual supplier relationship, conduct due diligence, and properly manage the project. And though the Buyer was practically funding the whole project, they failed to provide the human capital needed to salvage the product.
In the end, both parties failed to do what was needed to manage the supplier relationship.
Example 3 – Unethical practices and dishonesty
This Buyer has been accused of child and slave labor claims. The Buyer has allegedly been purchasing goods produced through unethical means and has neglected to disclose this information publicly after finding out. Additionally, it appears that this Buyer, after learning of the methods by which the goods were produced, has not required the Supplier to remedy their unethical practices.
This situation hits on a few levels as first, the Buyer should have performed due diligence on the Supplier before agreeing to purchase. And second, they should have required the Supplier to change their ways or ceased business with them altogether—neither was done.
Best practices for supplier management
There are two different approaches to supplier relationship management: reactive and strategic. A reactive approach is when companies only start figuring out ways to improve supplier relationships after an unpleasant situation occurs. A strategic approach begins supplier management practices long before a situation arises, meaning companies are better prepared ahead of time.
Having long-lasting relationships based on mutual trust with your suppliers should be a principal goal of any business. So, let’s find out which strategies can help achieve this.
1. Understand that your suppliers aren’t “just vendors.”
At the end of the day, suppliers are partners. They’re a part of your business and play an integral role in ensuring you get what you need to succeed. It’s important to keep them informed about your supplier management processes and be aware of their needs and concerns, too.
2. Your suppliers are a reflection of you.
It’s vital to realize that who you choose to do business with is an extension of your organization. If you do business with an unethical supplier, you’re putting yourself at risk to some serious PR blow-ups.
Make sure you’re performing proper due diligence on all your suppliers. Ask questions like the following to ensure you’re choosing the right supplier to reflect your organization:
Are they ethical?
Are they within my price requirements?
Do they have the right experience?
Do they have the capacity to meet my orders?
Are they financially stable?
3. Use technology to simplify supplier management.
Make your job easier—use a supplier management system to keep track and organize information regarding your suppliers. Basware Vendor Manager enriches supplier information against Dun & Bradstreet.
4. Make payments on time
Paying your suppliers on time is a tried and true way to ensure you keep their business. If you make timely payments and follow through with payment agreements, you’ll show you’re a reliable buyer. And if you inform your supplier of potential payment delays as soon as you know about them, you’ll strengthen your buyer/supplier relationship through transparency and communication.
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