What to Do When You’re Working With a Difficult Supplier
Procurement pros are supposed to build deeper relationships with suppliers, but what should you do if the supplier isn’t interested?
Supplier relationship management is always a hot topic as procurement pros cope with supply chain delays and rising prices. After all, isn’t that we’re supposed to do – build better relationships that benefit both sides?
Product shortages during the early days of the pandemic put a spotlight on supplier relationships. Some suppliers fulfilled their contracts as best they could, while others diverted product to the highest bidder. You’ll learn who your real partners are when the supply chain is stressed to the breaking point.
Suppliers fear one-sided relationships
Supplier relationship management (SRM), category management, and other procurement strategies are designed to move beyond a transactional relationship to unleash innovation. The goal is to make suppliers and buyers more successful together.
But what happens when your suppliers aren’t interested?
Perhaps at your organisation, the procurement team has been assigned to build those relationships and look for win-win engagements. Let’s look at it from the supplier’s side. Sure, it’s gratifying to be considered a supplier valuable enough to participate in a more profound relationship. From the procurement side, it’s a one-to-one alignment.
As for your suppliers, they may be getting similar requests from dozens or hundreds of customers. Your efforts to connect may end up with emails that disappear into the ether and vendor websites that are not accessed.
Don’t take it personally. Suppliers may not have the significant resources to participate at any level, let alone support a meaningful escalation of the relationship. That may mean signing up for the latest ERP integration, procure-to-pay solution, or the latest procurement tech.
Perhaps the buyers want to have regular supplier meetings. Now that the world has become more comfortable with virtual meetings, that’s less of a burden than in-person meetings and events. But still, most Zoom meetings could be emails.
The question remains – why wouldn’t your suppliers want to build a better relationship? And, most importantly, what can you do about it?
Are you a bad customer?
First, look inward. Is your company easy to do business with? Excess bureaucracy or slow payments could mean your orders are filled last, or you’re low on the priority list for truck drivers to pick up or deliver loads. Or your products could be diverted to the spot market for higher prices.
Have you done all you can to be a customer of choice? Does your organisation:
- Pay invoices in a timely way?
- Communicate expectations?
- Use supply chain finance or reverse factoring?
- Require the use of specific technology solutions?
- Require involvement in supplier councils and other time commitments?
- Not automate your time-consuming manual information flow?
- Require on-time in-full shipments or other rigid structures with penalties for non-compliance?
The fact is, there may be few options for critical products and services due to consolidation in many industries through mergers and acquisitions or failures. Buyers simply don’t have the leverage they used to enjoy. And constant threats of taking your business elsewhere don’t have much punch when suppliers can barely keep pace with demand.
One size doesn’t fit all
Category management strategy teaches us this: not all suppliers require the same level of involvement.
Sure, some suppliers are essential partners, providing insightful innovations and strategic thinking for mission-critical products and services. Other suppliers just sell stuff.
For example, Toyota Europe differentiates between strategic co-development partners and the other suppliers in its supplier relationship management strategy, according to Jean-Christophe Deville, General Manager, Purchasing.
About 15% of the suppliers are considered strategic co-developers. At that level, suppliers are involved in senior-level reviews, technical research and development (R&D) shows, and conferences for their own suppliers. All suppliers are subject to standard KPIs.
The purchasing group manages the relations along with the business units. The R&D group may value suppliers with the highest innovation potential, while quality will promote suppliers with the best quality performance. For the top level of suppliers, a purchasing manager or senior business manager becomes the primary contact for the supplier.
Blanket demands for price reductions typically don’t work as intended. Even giants like Walmart have faced pushback from suppliers on orders to reduce costs by 10-15%.
UK wellness retailer Holland and Barrett attempted to force suppliers to cut costs by 5% and wanted suppliers to pay for cameras, tags and other security technology in its stores. The truth is, harsh tactics like this rarely work and may create rifts that may go undetected until the next stress event breaks the relationship.
A focus on price reductions may ignore the pressures on the vendor in its own supply chain. The quarterly numbers may improve, but you could be incentivising said supplier to take ethical shortcuts and deliver lower quality.
Build healthy relationships
Start with a long-term, non-opportunistic approach in which one side does not aim to disadvantage the other. Regular, transparent connections are essential, and with a relationship of equals, bad news and hard decisions can be managed if both sides understand the circumstances.
However, this level of relationship-building requires soft as well as hard skills. Procurement staff are often prized for their technical and functions skills but don’t receive training in supplier management. They may work in silos without deep knowledge of the company’s strategy and objectives, so they can’t make well-informed decisions.
Building relationships with suppliers require what are often erroneously thought of as soft skills:
- Influencing
- Leadership
- Mediation
- Change management
- Team building
A survey from PWC found that a lack of soft skills was one of the top reasons for the failure of SRM initiatives.
Another reason for suppliers to decline to participate is the commitment of resources to capture and analyse performance data. Adopt performance scorecards that can be automatically generated via business intelligence applications. Of course, data security and integrity is an issue, but not an unsolvable one.
Equitable relationships build bridges
Finally, consider two-way measurements to put buyers and sellers on an equal footing. This approach creates a balanced partnership in which both parties are committed to improving their performance. Of course, some measurements are unique to each side. But indicators that measure the quality of the relationship require input from both parties.
Building tighter bonds with suppliers can help your organisation weather disruptions and supply chain delays. When times are slow through lockdowns and declining demand, prepare for future projects and renewed demand. Use these challenging times to become a better customer and create lasting, value-added relationships with your top suppliers.
Want to know our top tips for nailing your first meeting with a new supplier? Read this!
