Hedging Your Bets: How a Strategic Supplier Relationship Can Boost Your Business

Has your business been struggling with supply chain challenges? You’re not alone. As shocks have led to far-reaching consequences for business leaders and consumers, supply chain management is headed for a reset.

Demand for semiconductors has risen while supply has dwindled due to limited production capacity. Products like electric vehicles were heavily impacted by shortages, and many EV-makers slashed production timelines due to unstable supply and inflated prices.

Avoiding such outcomes can be difficult, but there are strategies to stabilize resources and alleviate supply chain disruptions. Forming strategic supplier relationships can lessen the burden on manufacturers and suppliers alike. However, like every good relationship, such arrangements are reciprocal and involve mutual effort.

How to Build a Strategic Partnership

Before entering a partnership, each side should clearly state their goals. Relationships between suppliers and manufacturers, or buyers, should build trust and provide equal benefits. Both sides must be prepared to follow through on commitments.

Sentiment is also an important ingredient in a strategic partnership. Each side should express a willingness to maintain a partnership and contribute to their partner’s success.

Lastly, an agreement defining the parameters and expectations should be put in place as a reference for both parties.

Starting with these conversations sets the tone for good communication, ensures future transparency and encourages long-term stability.

The Advantages of a Strategic Relationship

In times of supply constraints, casting a wide net can be tempting, but this approach is ultimately counterproductive. Working with multiple supply sources can heat up the market and cause inflation, which negatively affects manufacturers and suppliers. Maintaining a committed singular partnership with a vetted, small group of suppliers is the simplest and most cost-efficient way to weather a volatile market.

Supplier Benefits:

  • Forecast commitments: Manufacturers can provide suppliers with estimates for product launches, making allocation assignment easier.
  • Enhanced feedback: Receiving informed comments on procedures and products improves supplier’s offers.
  • Steady revenue stream: Predictable financials help suppliers achieve fiscal targets.
  • Price assurance: Manufacturers can strengthen their relationship with suppliers by extending rebates based on the volume of spend or market share, grant suppliers right of first refusal, and provide flexible timelines for review processes.

Buyer Benefits:

  • Improved responsiveness: Buyers should receive timely responses since having a dedicated sales representative streamlines communication.
  • Guaranteed supply availability: Suppliers can offer first and last looks at opportunities which can result in more efficient lead-time quotes. This gives manufacturers an advantage over the competition.
  • Price efficiency: Working with a dedicated supplier reduces opportunities for bidding wars, keeping prices affordable.
  • Quality assurance: Ensuring suppliers have an adequate quality assurance process builds trust and strengthens the relationship through consistent delivery of functional products.

Preventing Partnership Pitfalls

Keeping benefits equal is the best way to maintain a strategic supplier relationship. To keep the faith, both parties should continually meet expectations, evaluate risks and reap equal advantages. Best practices should include scheduling periodic business reviews to assess performance and specify action items. Reestablishing expectations on a regular basis helps align mutual goals, ensuring lasting success.