Do buyers initiate new supplier relationships with the long term in mind or is it simply a price issue? There are lots of opinions on this, and obviously every situation is different.
Proficient Sourcing deals with situations involving custom manufacturing of parts, assemblies, and occasionally building complete equipment for others. We believe there are indisputable benefits to long term supplier-buyer relationships in most situations. Getting there, however, is problematic due to the difficulty of initial selection, even if developing long-term, strategic relationships is desired.
We have often commented on the issue of initial supplier selection, and believe there is great opportunity available for the interested procurement professional. The content below is an update of an earlier newsletter, and recently we created a white paper, “Build a Better Supply Chain with your Key Suppliers” that deals with some of the factors involved:
On occasion we observe an obsession with price; obviously a vital part of any supplier relationship and an essential metric for sure. However, in several metalworking situations, we’ve found competition bidding on work with pricing less than the purchase cost of the materials involved. This means the company may have an existing inventory or is using off-fall from some other work. While it’s a good deal for the buyer, we wonder what happens if and when time erodes those advantages? The buyer may then have a big problem.
We found a London-based company Old St Labs that gives thoughtful comments on the potential longer-term value of supplier-buyer relationships:
Think of suppliers as essential investors in your business venture. Not only can these suppliers create quality products and store them at affordable rates, which in turn can expand your business; but, they can also be the key factor in a business’s failure if they fail to meet expected deadlines or produce bad quality products.
What Benefits do Suppliers Bring
- Satisfaction through high quality finished products, which results in higher customer satisfactory rates. This also decreases overhead costs as businesses are less likely to have to refund customers for returns.
- Timely delivery, which increases the customer’s satisfaction and their reliability in the business.
- Lower overhead costs from consistently offering fair pricing, timely delivery and their knowledge of your particular industry. So long as your fair with your supplier and they’re fair with you, they continue getting business and your business continues to grow.
The Importance of Supplier Innovation
Lastly, and most importantly, suppliers indirectly grow businesses through innovation. Most businesses struggle to keep up with the changes in their customers’ needs and wants. Most businesses put a handle on these changes by offering ways for customers to interact and give feedback on their products and services. In the wake of social media, many businesses offer customers the platform to give feedback whether good or bad in a public forum. They also offer customer surveys following customer service phone calls or emails to get an idea of what the customer needs. However, the most untapped source that could hold the key to containing all of these answers is your supplier.
We think it ‘s appropriate to be suspicious of pricing too good to be true over the long haul—unless your needs are short term. Just beware: ultimately you may be sacrificing those overall benefits you may value in long term relationships.
