Companies with long-standing supplier relationships should be evaluated on a few key factors including an evaluation of cost, overall performance, quality of the product and service, and their ability to demonstrate strategies or offer solutions that will have a positive impact. As part of a regular evaluation process, suppliers should also be getting feedback from the client to help continue to make the relationship successful.

Outside of the regular evaluation process, there may be times where factors such as changes in the economy or mergers and acquisitions require a company to evaluate their supplier relationships and determine where potential opportunities exist to demonstrate cost savings and optimize their supply chain. When clients are specifically requesting their long-standing suppliers to identify hard dollar savings because of these factors, we have found that suppliers provide responses in a few different ways. It’s interesting to see how some long-term suppliers value their client relationships and their business when they are posed with this task.

There are suppliers that can tell a great story about their relationship but never get down to the details of presenting an actual plan of real, hard dollar cost savings. Suppliers selling their value and using it as a deflector to drive cost reduction in the products and services that they are providing is not providing a complete solution. Services such as free training, rationalization of parts or products, or evaluating their systems for improvements are offered with an estimate of “cost savings” but can be difficult to quantify as hard dollar savings. These services are valuable and might be considered cost avoidance but when a company specifically asks for savings that can be clearly demonstrated through unit cost reductions, this is not solving the problem. This should not be considered the sole solution to the client. In a long-term supplier relationship, it is expected that these types of programs are already taking place and should be actively presented and utilized.

Then there are the suppliers that do nothing when asked to identify savings. These suppliers are too comfortable in their current state and may feel as though they have the advantage based on a product or service that they provide. It is probably time to consider the type of products and services and the criticality of the supplier relationship and identify potential alternate suppliers and compete the business.

Finally, there are the suppliers that demonstrate their true partnership to a company. They truly engage and find areas where they can help improve the company’s supply chain and demonstrate hard dollar cost savings. These suppliers come to the table with a variety of options which may include: unit cost reductions, improved discount structures, tiered rebate programs or other incentive programs based on their current business. Companies may find that they have the opportunity to drive further business to these partnerships by leveraging additional business whether through company expansion, or by determining if these preferred partners can competitively provide products and services from the suppliers that did not respond to the requests for cost reductions.

Developing preferred supplier partnerships, by engaging on a regular basis and developing metrics to measure the products and services that they are providing, helps to maintain long term relationships, improve the supply chain, and drive savings to the company.

Next discussion: Developing and managing KPIs with suppliers.
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Lindsey D.

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