Supplier relationship management is a key contributor to the success or failure of the partnership formed between the purchasing team and the supplier network, but can also be a vital component for the sourcing team to ensure accurate and competitive pricing is maintained within the supply base.

The supplier/client relationship can be though of as a one time process during the initial sourcing process, or a partnership with regular checkpoints and coordinated efforts that benefit both parties.

The advantage of establishing a pricing agreement with a supplier and not actively checking in with the supplier is the low cost of maintaining the relationship. This is often best for very low spend accounts when a large number of suppliers are used, and when the purchases from the supplier are very irregular. However, if the supplier provides key components or provides a large number of products, the spend justifies the cost of regular checkpoints and sourcing initiatives to ensure the supplier stays competitive with the market.

For these key accounts, the supplier may have coordinated efforts during product design or maintains the relationship with manufacturers for key components. Often there is a reluctance to engage with the supplier until there is a problem, but a proactive approach will ensure the availability of the items and the management or reduction of lead times to maintain a healthy relationship with the production team.

This can be as straight forward as quarterly review meetings with a scorecard which includes not only on-time delivery, but pricing and qualitative relationship metrics. This will highlight missed deliveries or expected shortages and allow for active conversations during the expected semi-annual or annual proposed pricing increases. For items stocked by multiple distributors challenging pricing increases can be performed with a quick RFQ/RFP with the other suppliers, but for exclusive distributors the process needs to include a contract where the price increase process is addressed.

For exclusive distributors we strive to include both service level agreements as well as limitations on price increase with requirements of documentation from the manufacturer or index tracking reports in the case of raw materials or chemicals. Therefore, by limiting the term of contracts and actively challenging price increases, spend fluctuations can be managed and minimized.

Two other components can be often considered less crucial, but contribute substantially to the overall spend with the supplier. These components include managing the purchasing process, and logistics and delivery.

By managing the purchasing process you can ensure the pricing and discount structure that was negotiated was implemented and is actively maintained by the supplier. Items such as punch-out and static catalogs also provide advantages since the teams across different facilities have access to the same items at standardized price points and purchase from the preferred supplier as opposed to a wide range of local or online suppliers.

A separate contract with a logistics company can remove the often confusing component of including delivery in item level costs for direct comparison between distributors and result in more competitive pricing, since the spend can be combined from multiple suppliers under one carrier. This will result in a higher volume and spend for the preferred carrier, and allow them to offer lower pricing to increase the overall savings opportunity.

As the relationship with a supplier grows in both number of products and overall spend, instituting a supplier relationship management program can present advantages to both parties. It can prevent shortages of supply and high price increases for the client, and ensure a steady growth and compliance with respect to purchasing patterns from multiple facilities for the supplier. Therefore, establishing and maintaining a mutually beneficial partnership.

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Martin Przeworski

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