During times of stock shortages or last minute changes to orders we tend to lean heavily on our relationships with suppliers. And, most suppliers will understand the need to manage to changing customer requirements, respond quickly to changes, and fill orders on time for a competitive cost. However, we've seen relationships that begin with a mutual understanding of needs with a preferred supplier become difficult to manage, and costs can creep up year over year with an ad hoc management arrangement.
One of the ways we've worked to mediate this possibility is with structured quarterly reviews and scorecards that maintain key performance indicators paramount in the supplier's mind as opportunities for maintaining and expanding the business.
The main advantages to an ad hoc supplier relationship management approach are simplicity, focus on resolving specific and immediate tasks, and a relative small time commitment. This works perfectly for very small spend and infrequent ordering.
However, the supplier usually receives inconsistent feedback and ends up managing orders/products to avoid errors, which can lead to the supplier having more information than the buyer and make it difficult to switch if pricing becomes non-competitive.
When a supplier transitions from a secondary to a preferred status we tend to see a more structured approach result in strengthening the relationship and keeping costs under control.
One of the main components of quarterly reviews is the key performance indicator scorecard. This is a set of jointly defined criteria such as on time orders, responsiveness to inquiries, stock of materials, competitive pricing, and discount structure that helps the supplier understand what's important to the customer and allows us to keep an objective record of the relationship with the supplier.
This can also include weekly review calls with buyers for priority items or in times of volume increases and availability limitations. A centralized point of contact for all locations in the case of a national supplier can also lead to significant time savings and the ability to leverage spend across all locations.
Therefore, if you do see an increase in the spend with a specific supplier and a greater reliance of the items purchased it may be time to move from ad hoc to structured supplier relationship management. The first step is simply to schedule a review with the representative, or to request a national representative be assigned to the account in addition to the local representative and discuss historic buying patterns as well as define the KPIs that are critical to the business.
This may be quite an extended process depending on the products purchased, but the result will be a stronger partnership and competitive pricing.