3 Reasons Understanding Your Suppliers Better Will Benefit Your Sourcing

Supplier relationships are your new competitive advantage

All businesses face extraordinary challenges in 2020. The fallout from an ongoing COVID-19 pandemic has put financial pressure on companies, resulting in cost-cutting across the board. In addition, the epidemic has severely disrupted supply chains. When critical raw materials and components are unavailable or in short supply, prices rise, and output falls off. Even when a product is in demand, a business that’s working around challenges with its suppliers is often unable to take advantage of the opportunity.

While all businesses and organizations feel the cost-cutting pressure, supply chain disruption puts the sourcing team in a unique position. There is a chance to modernize the way sourcing professionals source and negotiate. This accomplishes the goal of cutting costs, while also implementing technology that strengthens supplier relationship management (SRM) capabilities, minimizing the risk of future disruption.

Earlier this year, a study published by The Hackett Group found that corporate leadership is now on board and ready to spend:

“Historically, procurement’s major challenges have been funding and resource inadequacies as well as a lack of commitment from enterprise executives for transformation. But those are not as pressing issues today.”

What are corporate leaders hoping to see as a result of investing in their sourcing teams? The Hackett Group’s research identified five areas that are considered critical credibility gaps that need to be addressed in 2020:

“Improving procurement’s agility; becoming a trusted advisor to the business; aligning skills and talent with business needs; modernizing application platforms, and improving analytical and reporting capabilities.”

Choosing the right sourcing enablement software will accomplish these goals, satisfying those requirements. However, the right tool will also help your organization to understand its suppliers better. This is key to a healthy, strategic, supplier relationship and benefits your sourcing in three key ways.

Pricing and Value Advantages

When you establish a real relationship with a supplier, they feel more like a partner in your business. To get there, you need to go beyond a purely financial transaction-based model. You need to be open to listening to their comments and concerns while filling them in on new developments with your company. New products, new processes, special promotions—being in the loop makes a supplier feel almost like they are a part of your business. As part of this process, the information flow is two-way. You’ll learn more about their business, including their opportunities and challenges.

The payoff here is a stronger relationship that will pay off with pricing and value advantages. A supplier who feels you have an interest in their business and who feels invested in your business is more likely to offer their best pricing. Value also comes into the equation, and this can be even more important than reduced pricing. A high-value supplier can reduce your costs or improve your business in other ways by providing you with superior service, for instance.

A Better Understanding of Risk

Relying on a supplier always carries a degree of risk. Will they deliver on time? Is their business in good financial shape? Is their quality control at the needed level? Do they have experience in manufacturing the part you need? Is their location in a stable area, or is it subject to environmental or geopolitical disruption?

Suppliers can be located anywhere in the world. And much of what you know about them is based on their marketing material. It’s not very likely that you can simply walk over to their office, have a tour of the facility, and examine their records for the past decade. When you develop an understanding of your supplier, you also get an accurate picture of the risks involved in working with them. From there, you can make strategic decisions, including whether to seek a different supplier or whether steps can be taken to eliminate or reduce a risk factor.

Establish Strategic, Long-Term Supplier Relationships

To develop a detailed and ongoing understanding of your suppliers requires two-way communication. This ongoing communication—keeping each other up to date on any new developments and responding to any questions or issues—will go a long way toward establishing a strategic, long-term supplier relationship. It’s a forward-thinking approach that’s all about planning, being prepared, and seamless delivery.

The alternative is a reactive supplier relationship, where you are constantly putting out fires and switching suppliers in search of one that can be trusted to deliver.

While your company’s senior leadership may not have flagged “understanding your suppliers better” as a critical area of focus for 2020, the fact remains that supplier relationship management is an essential factor to your success. That’s why Arkestro should be on the top of your list of strategic sourcing software solutions.

Arkestro checks all the boxes, including vastly improved analytical and reporting features. It also offers cutting edge artificial intelligence features like automated negotiations. Arkestro is also designed with deep supplier relationship management support. All buying organization stakeholders can communicate directly with each other in real-time. Suppliers can use Arkestro to communicate directly with the buying organization. The risk of e-mails going sideways is eliminated.

There’s no other strategic sourcing software that enables your sourcing team to better understand their suppliers. This is always a competitive advantage, but as the pandemic has shown, a strong supplier relationship can also mean the difference between continuing to operate and facing lost business because of supply chain disruption.

Find out why Sourcing Enablement with Arkestro is a good fit for your team.