Mutually Beneficial Supplier Relationship
Before launching a sourcing activity and approaching potential suppliers, it is necessary to evaluate them and establish what value they can bring to you. Supply market analysis is hard work but worth the investment in time. It involves the gathering of facts, data, observations and trends about the market for a given commodity or service.
The value of supply market analysis
An in depth knowledge of both the industry and the suppliers in it is critical to making the right sourcing decisions and to eliminate unnecessary risk. You need to establish how important you are to a supplier as well as how important he is to your business. This is one task that requires human effort as it cannot easily be automated.
Step by step to supplier intelligence
Based on the commodity being sourced, do your homework.
Identify the key players by size and their importance in the market
Evaluate the financial health and customer base of the main players
What is each supplier’s core business and goals?
Understand the most common cost structure used in the industry and the price drivers
The best supplier for you may be one that you do not have any knowledge of. A common error is to assume that you already know who the suppliers are. Technology is evolving, suppliers fall behind and there are new entrants every week.
How important could you be to a supplier?
Will you be one of the supplier’s key customers?If you are, this will give you some leverage in terms of price and service. A point of caution, if you are the main customer and make up the bulk of his income, there is a risk. The supplier could encounter cash flow problems or staffing difficulties which will impact you directly. It is even possible that he may go out of business due to economic pressures or supply market changes.
If you are not a key customer you may still bring some prestige to the supplier and he may acknowledge the expertise and smooth processes that you bring to the relationship. Can you bring some value to the supplier in access to a new industry, help with product innovation or sharing of technology? These may be factors in your final supplier selection.
How important could a supplier be to you?
Continuity of supply and sustainability are critical factors.To ensure continuity of supply the supplier needs the equipment, materials and skills to deliver your requirements.
Is his understanding of quality and continuous improvement in the supply chain the same as yours and is he committed to delivering that consistently? Product innovation and process improvement is a joint effort; your openness, flexibility and support for collaboration will pay dividends. An example of collaboration: can the supplier provide advice on an area of your joint business that you are not very familiar with, e.g. transport and logistics. The level of after-sales service and technical support the supplier provides is important.This includes the supplier having procedures to handle issues, delivery complaints, reporting, disputes, and any other problems.
A relationship that allows for continuous improvement on issues such as quality, specifications and processes will provide benefits and lower costs for both parties. If the supplier has similar values and philosophy regarding business processes and communication, you will benefit greatly from this.