5 ways to build better supplier relationships

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These days in the context of supplier management you see a lot written on soft skills such as relationship management and its importance in effective supply chains.

In short, relationships build partnerships, and good partnerships provide a route to performance. Gone are the days of a stuffy formal relationship, effective procurement teams these days rely on building trust and personal relationships or do they?
My guess is that we’ve all experienced both good and bad supplier relationships first hand. Adversarial relationships can be of course be a challenge but does it reduce performance? In my experience it almost certainly does. Effective supply chains need attributes such as great communications, understanding and a no blame culture to produce the required performance results. Adversarial relationships typically belong to high cost and low performance.

When you think about it this isn’t much different from personal relationships, and indeed many of the tools that deliver effective personal relationships also deliver killer business relationships so it shouldn’t come as a surprise.

The actual process of managing a supplier relationship can utilize many tools often these are dependent on the type of supplier you’re dealing with and the stage that the relationship is at however there are some fundamentals that you can look to use.

Great Communication

While its somewhat stating the obvious, communications is THE key principle in any relationship. Effective communication helps establish trust and can prevent minor issues becoming bigger ones. Communication doesn’t have to be verbal but can be supported by a flow of information that is usable to both parties. The trick is to have methods that allow information to be shared quickly which support both parties and their processes.

Partnering culture

Part of the trick to relationships is avoiding blame. Both parties must realize that problems happen and the trick is to work together to solve them, without retribution on the other party. Seeing the relationship as a partnership where working together to resolve issues is seen to deliver real performance gains can add significant weight to the relationship.

Appropriate use of Supply Chain Technology

Technology can be a wonderful thing and it can also act as a millstone around your neck if it’s either not fit for purpose (doesn’t work) or not appropriate (wrong tool). I’ve seen plenty of suppliers provided e-trading tools by customers only for the tools to fall significantly short of being something usable – this can build huge levels of frustration within the supplier and hamper effectivity. Technology can be great but time needs to be spent up-front to ensure that it’s adding the expected value.

Celebrate feedback

Relationships shouldn’t shy away from providing feedback where things can be improved. The relationship should work within a continuous improvement cycle and both parties should look to discuss issues openly (in an appropriate forum). Also look to celebrate the good. Focusing on what works and the victories along the way can help bind both parties and strengthen the relationship.

You are not the suppliers only customer

Don’t pretend you’re the only customer. My final comment is to remember you are not the suppliers only customer. We can all get swept up with the day job and there is often a tendency to over demand but do provide sufficient space for the supplier to service other customers. It’s in your interest for the supplier to succeed and to do that it needs a strong customer base, it won’t get that if you take up all their time and disable them from serving others.

Have some thoughts on supplier management – we’d love to hear from you in our comments section below.

4 key impacts of Overstating forecasts in SIOP

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I was reading Arkieva’s Blog the other day (excellent article by the way) and had a good laugh at the comment “7 out of 10 forecasts for new products are overstated”. How true! This is a really common problem where over zealous sales teams over forecast sales which can then drive all manner of supply chain challenges if they get loaded as part of the SIOP process.

If you’re not aware of what SIOP is then I suggest you follow the link above as it provides a great introduction. SIOP should be seen as the gatekeeper of business processes, managing the heartbeat of the businesses Supply Chain.

SIOP’s will typically take in sales forecasts as part of planning data. Most of us would want to show confidence in our numbers when constructing a forecast (No sales team wants to show they are not going to do brilliantly), but when over zealous forecasts get injected into the supply chain they can cause trouble. Why is that you ask, well let’s take a look at 4 key impacts on supply chain with overstated forecasts.

1/. Forecast gets loaded in Master Production Schedule driving unnecessary procurement – At it’s worst case, where the SIOP process considers a forecast which due to Lead time constraints is loaded in MRP as forecast demand material purchases get driven, driving cost and cash flow implications.

2/ Sourcing uses SIOP information to share with suppliers (to negotiate) deals and resultant agreements are founded on incorrect assumptions – Procurement teams often use SIOP data to help drive supplier negotiations – in particular questions like “how much of the product do you think you’ll need and when will you need it”. Volumes often form a major part of pricing terms and if the data is wrong at the start then you’ll end up re-negotiating the deal at a later date – this can radically alter both the price and nature of the relationship.

3/ Resources planning gets out of whack – SIOP planning, in factory/assembly environments also drives resource planning, this can drive staff levels, training needs and all manner of associated actions. Incorrect numbers mean incorrect plans.

4/ Diminished confidence in the sales and planning process and lack of trust in the output. – Perhaps the key issue. If inaccurate data is used, then the effectiveness of SIOP as a process can be radically diminished. An important aspect of this is that it can reduce trust in the process and cause people to question its value. This is a huge backward step as if managed correctly SIOP can help your business excel.

I’ve faced many discussions with suppliers where you’ve had to explain to them that the forecast you’d been provided was wrong and that it’s now been revised and the forecasted usage is now much reduced. If this happens regularly then no-one will trust you and negotiations will be so much harder.

There are various methods that can be deployed to improve SIOP accuracy. Improved statistical techniques to start with, and at a basic level, just talking to the customer to get a more accurate view of sales can work wonders. What’s important for the business is to understand that it’s is just a forecast and no doubt it’ll be wrong to a degree but through some up-front work make it as accurate as you can. Ongoing forecast accuracy KPI’s can help as part of continuous improvement activities – if your sales forecasts are always radically out then going forward you can learn from this and tune them downwards.

Have some thoughts on SIOP forecasting? Use the comments section below.

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