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Supplier Relationship Management – The Secret to Effective Supplier Relationships

For the longest time, the procurement scale has tipped in favor of the buyer. However, the post-pandemic era has seen a dramatic shift in the business landscape. Constrained supply chains and the associated shortages have resulted in mounting pressures from the government and investors for organizations to diversify their supplier bases.

The supplier relationship management dynamic has changed, with procurement processes becoming increasingly supplier-centric. The balance of power has shifted. Suppliers are calling the shots.

The question becomes: What does this mean for your existing supplier relationships? Here’s everything you need to know.

Why Is Supplier Relationship Management Taking a Front Seat?

At the height of COVID-19, the estimated value for items out of stock in 2020 was $1.14 trillion. The leverage buyers once used against suppliers is no longer working in the current global inflationary economy. Supplier relationship management has never been more critical than it is right now.

Michael E. Porter’s book Competitive Strategy outlines what became known as Porter’s Five Forces—a framework used to analyze a business’ competitive environment. These five forces—suppliers, customers, potential new market entrants, competitive rivals, and substitute products—can be used as a business strategy guide for companies looking to increase their competitive advantage.

After all of the industry-wide supply shortages witnessed in the last two years, this delicate balance of power has shifted. At least two out of five forces have seen changes. Supplier power has increased, especially among businesses that supply in-demand products. Some are calling 2022 “the Year of the Supplier.”

Suppliers are leveraging this newfound power to push back against policies that have traditionally been forced upon them, particularly those they deem punitive. Some of these include annual pricing reductions, extended payment terms, and the lack of visibility and profit-sharing.

Supplier Frustrations

Many buying organizations falsely believe that all suppliers want to do business with them. They expect them to do whatever it takes to be considered and do little to improve the supplier experience. On the other hand, there are buyers who know the value of strong supplier relationships. Below is a brief overview of common frustrations suppliers face when dealing with buyers.


1. Buyer-Focused Procurement Best “Practices”

For years, so-called industry “best practices” have been buyer-centric. They’re focused on making procurement processes and supply chain systems more efficient and end up treating suppliers like a commodity.


2. Inefficient Supplier Portals and Surveys

Procurement departments constantly get feedback from suppliers on the inefficiencies plaguing their supplier portals. Most enterprise resource planning (ERP), procure-to-pay (P2P), and source-to-pay (S2P) are cumbersome and time-consuming to use. No two systems are alike, have no integration capabilities, and form fields often lack auto-fill or memory options. 


3. Too Many Hurdles to Jump Through

Companies require suppliers to jump through whatever hurdles they place in front of them to have the “privilege” of serving the customer. Adding extra parameters such as those focused on diversity, risk, and environmental, social, & governance (ESG) has made it difficult for suppliers to comply.

Most of these requirements come about when buyers realize they don’t have enough information about their suppliers. Since they don’t have an efficient process to collect this data, their go-to method involves using a host of surveys to their supplier base.

This scramble for information is seen when new government regulations are implemented. Suppliers have no choice but to show they are compliant with every buyer they work with, regardless of the industry they serve.


4. Inefficient RFXs

Many buyers still send out RFXs in analog spreadsheets without collaboration capabilities or auto-fill features. As a result, suppliers end up with repeated requests for information that they have likely submitted several times before.


Are Suppliers Calling the Shots?

The short answer is—yes, and they’re looking for preferred customers. Here’s why.

We’re now two years into the pandemic. The worldwide supply chain still hasn’t recovered from the challenges plaguing it, key among which are the constant delays and disruptions. According to a HUBS report, 56% of companies experienced more disruptions to their supply chain in 2021 than in previous years.

Record high freight rates, out-of-place cargo containers, and choked shipping ports remain recurrent features in local and international news. This chaos has threatened the competitive position and survival of businesses, particularly those unable to meet customer expectations.

Companies can be sure of this: a disappointed customer might never return.

These challenges have shifted the balance of power. Buyers need suppliers more than ever, and suppliers are fully aware of it. They use this newfound leverage to reject buying organizations extending one-sided terms.

  • They are turning down companies requesting discounts in exchange for faster payments.
  • They are placing strict limits on credit extensions and lengthy payment cycles.
  • They are calling the shots in more ways than one, and buyers must get their act together to become the customer of choice.


What Makes a Good Customer?

So, how do you become the customer of choice? Here are a few ways to make your organization attractive to suppliers.

  •   Send out cohesive and well-laid-out RFXs
  •   Ensure your supplier experience is user-friendly and integrates with other tools
  •   Come up with better negotiation strategies
  •   Make fewer demands from your suppliers (think payment terms, contract terms, requests for information)
  •   Ensure that content on platforms  and surveys are up-to-date
  •  
  •   Incentivize your suppliers to do better rather than punish them when they fall short
  •   Keep the information you collect from suppliers private and secure
  •   Use Arkestro’s PPO to run your sourcing events 


How to Use Predictive Procurement for Effective Supplier Relationship Management

The single, most effective way to manage supplier relationships is to leverage the predictive procurement framework when addressing ineffective relationships between buyers and suppliers. The first step toward building sustainable and empowered relationships involves determining what suppliers actually want.

Here’s what they’re looking for:

  • Clear instructions on sourcing events and the ones they should be bidding on
  • Straightforward answers on award scenarios that don’t leave them wondering whether or not they’ve won or why they didn’t
  • Better communication and relationship building
  • Support when their portals are broken or the information being requested is unclear
  • Anything that helps them streamline their processes and reduce their low-touch admin tasks
  • Easy to use technology 

With that in mind, here are some ways your organization can leverage Arkestro’s predictive procurement orchestration platform to promote effective supplier relationship management.

  1. Manage supplier profiles with live data feeds, including internal spend and external market insights
  2. Manage supplier profiles based on historical behavior across purchasing, sourcing, performance, and compliance datasets
  3. Get predictive real-time alerts to suppliers for emerging risk factors, performance-related issues, or price changes
  4. Get price suggestions to give suppliers a place to start and make it faster for them to enter their information

The secret to effective supplier relationship management lies in removing the hurdles suppliers have to jump through to be in business with your organization. It’s about fostering a procurement climate that makes you attractive to suppliers and treating them as equals, not commodities. 

Get in touch today to see how Arkestro can make you your suppliers’ customer of choice.

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Rob DeSantis

Founder

As a former co-founder of Ariba running sales, Rob has deep expertise in the procurement space, having helped propel Ariba from zero to $250 million in revenue in four years and IPO of the year in 1999 before its acquisition by SAP a decade later. In addition to co-founding Ariba, Rob was also an early angel investor and board member of LinkedIn, the world’s largest professional online network.

More recently, Rob served as an investor and advisor to a small portfolio of companies including Bloom Energy, AEye, Inc., HiQ Labs, Agiloft, USEND and more. He is also a co-founder of Dibbs Technology and TrueParity. Rob holds a BSME from the University of Rhode Island.

Marty Meyer

Chief Financial Officer

A trusted partner and advisor on the executive team, Marty has a unique background having been the CFO of nine venture backed technology companies. Marty has raised over $300M in venture funding and has closed six strategic M&A transactions with a combined value of over $1B. Marty has deep domain expertise in ecommerce, consumer internet, networking, data security, data privacy, media technology and enterprise software industries. Marty is especially experienced in the finance and operations activities of SaaS companies and is driven by data and metrics to help create outstanding customer experiences and drive efficient growth.

Neil Lustig

President and Chief Operating Officer

Neil is a seasoned executive with over 30 years of experience leading and building teams in Tech. Neil brings insights from a variety of market spaces and company sizes. Most recently Neil was the CEO of GAN Integrity, an innovative SaaS Compliance technology company serving enterprise customers in North America and Europe. Before that Neil was the CEO of Sailthru, a leader in ML driven personalized multi-channel marketing communications for media and e-commerce markets. Prior to that Neil was the CEO of Vendavo, the leader in B2B price optimization and management for large enterprises. Before Vendavo, Neil led the commercial team at Ariba, the market pioneer that defined and created the eProcurement space. Neil served as the GM of Ariba Europe and subsequently the GM of Ariba North America. Neil started his career at IBM where he spent sixteen years, initially as a software developer, and then twelve years in a variety of Sales and Marketing roles

 

Neil has a BS in Computer Science and Applied Mathematics from SUNY Albany. He is a native New Yorker, Brooklyn born, and still resides with his wife and three children in New York City.

Bonnie Adams

Director of People Operations

Bonnie is a People Operations and HR veteran, with over a decade of experience establishing successful people and culture functions for early to mid-stage tech startups going through high growth phases. She has a passion for supporting and creating inclusive and collaborative work environments and is well-versed in driving positive changes in her organizations as a trusted leader. Prior to joining Arkestro Bonnie worked as the People & Culture Coordinator for Ionic Security, helping them scale from 5 to over 200 employees in addition to a $120M funding round. Most recently she was the Head of People & Culture for blockchain innovator Storj Labs and was the Director of Human Resources at PrizePicks, the largest independently owned Daily Fantasy Sports platform in North America.

Arym Diamond

Chief Revenue Officer

Arym Diamond joined Arkestro in January 2022 bringing over 20 years of experience in the enterprise software and consultancy industry.  He is responsible for the worldwide go-to-market revenue strategy. Prior to Arkestro, Arym was Chief Revenue Officer at CalAmp focused on Telematics and Logistics. He also served as the area vice president of North American Sales within the Salesforce.com Enterprise Business unit for Einstein Analytics & AI, where analytics and machine learning were re-imagined for the front office.  Prior to that, he spent over 10 years at Oracle in various sales positions. Arym holds an MBA from the University of Southern California Marshall School of Business, and an undergraduate degree from California State University.

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