The relationship between the supplier and the customer is a really important one that should not be played down. If you can secure good suppliers who will work with you and fulfill your orders on time, with good quality items and at a great price, then your business will certainly prosper. But how can you provide incentives for your suppliers without having to break the bank or be seen as being desperate to retain them?
Well the first way that you can provide an incentive for a supplier is to reward them by coming back to them so that you use them whenever possible.
One of the important aspects of supply in the 21st Century is a relationship that is based on mutual respect and transparency. This involves communication being undertaken and 2 way communication is the order of the day.
So tell your suppliers that you value them and let them know that for as long as they meet your requirements, you will be keen to do business with them.
Some companies use Key Performance Indicators to act as an incentive. These give the supplier an indication of what will be satisfactory to you in terms of performance and so they have an incentive to achieve the levels of service you expect. Payment milestones are often set against these KPI’s
This is very important because you are telling the supplier what you expect. If you do not tell them and then complain afterwards then they can feel as if they are groping around in the dark. So it is always better to be up front with them.
The supplier will also be wise enough to know that if they perform well in terms of the Key Performance Indicators then you will come back to them, so you are providing them with an incentive to do well through giving them indicators that communicate exactly what you are looking for.
Communication is also important because if a supplier feels unappreciated or even feels that you will turn round at any point and sever their contract, they are less likely to work with you and meet your needs. So you need to tell them when you are happy with their service and you need to tell them that you will continue to use them.
You can also take practical steps to provide incentives to your suppliers. One thing that you can do is plan your production planning to avoid a situation where you change a line after production has started. This can result in workers having to work for long periods to recoup the time that they have lost. But if you undertake proper production planning you should be able to stop this from happening (for the most part). You should also make sure that your suppliers are aware that you are doing this and that you are keen to avoid them having any knock on costs.
Make sure that you give all your suppliers clear lead times and stick to those lead times. Do not keep changing lead times and messing your suppliers around; they will appreciate the consideration you are showing for their operational practices.
The above ‘incentives’ do not really carry any financial implications, but you could think about offering some kind of bonus if orders are completed on time etc. The difficulty with these type of bonuses is that if you give a supplier a bonus, they can expect this every time. So then you end up having to pay out every time an order is completed on time. This type of incentive is not always the best way to go and instead the rewards of repeat business, the promise of a long term relationship and a mutually beneficial relationship should act as incentive enough!
Comments
One Response to “Top Tips On How To Provide Incentives For Your Suppliers”
Thank you so much for the information. This is an important topic that is not brought up enough. I work for an international company based in Asia and have been assigned to review the company’s current system of supplier rewards and penalties. The company is currently using performance key indicators to keep supplier accountable. According to performance, payment terms are adjusted. This is the extent of the rewards and penalties, but we wish to add to it. We feel the current system is not doing enough to increase supplier performance. We are not looking for gift-type rewards, more so workable systems that can establish clear SOPs that are sustainable. Do you have any specific examples of systems that have worked for you in the past?