In the journey to reduce cost, many marketplace competitors introduce complexity into their supply chain through the diversification of their supply bases and full-fledged outsourcing. While these strategies may benefit the bottom line, they could also significantly increase systemic supply chain risk. Therefore, it’s critical to take thoughtful steps to develop supplier partnerships built on collaboration and transparency, because a partnership developed this way can provide a lifeline when it’s needed most.
These types of supply partner relationships will create a win-win solution for your organization and your suppliers through reduced supply chain risk and shared cost savings, which is why we recommend the four steps below to build stronger supplier relationships, reduce risk, and generate value in your supply chain.
4 Steps to Lower Cost & Reduce Risk Through Collaboration & Transparency
1. Develop a Collaborative Demand Planning Process
The most important aspect of developing a collaborative demand planning process is creating one that invites trust and transparency. Demand planning processes tend to break down when there are miscommunications and misinterpretations of shared planning information, which erodes trust and leads to protectionism. To mitigate these issues, take the following three actions:
- Leverage a single record of discussed action items and notes from meetings, and update these as a group to ensure agreement and understanding
- Implement processes and procedures that clearly signal firm orders and directions, such as ERP generated orders
- Have recurring process feedback meetings that develop action items to improve your supplier-customer relationship through partnership process improvements
2. Work Collaboratively to Increase Product Quality
Inherently, the higher your quality of products or components produced is, the lower the risk exposure of your supply chain will be. To put this another way, the fewer quality issues there are that need resolving, the more your team can focus on revenue generating actions instead of spending time fixing quality problems that result in supply chain disruptions.
Therefore, it’s prudent to develop a supplier-customer relationship that puts significant focus on product quality. The key here is to proactively and collaboratively attack this with your supply partners and not spend time on penalizing miscommunications. Achieve this by developing joint quality initiatives and projects that affect processes at each company. This approach will accomplish two things: 1) it solves problems for both enterprises, and 2) it creates a team-based relationship focused on growing together with a fixation on team success.
3. Practice Direct Communication
The foundation of a collaborative and transparent supplier-customer relationship is mutual trust and respect generated through thoughtful explanations of decisions and communications. Communicating in vailed ways creates distrust and causes your suppliers to practice protectionism, which increases your long-term cost. Without direct, honest communication, all the strategies discussed herein aren’t achievable, because each strategy requires equal participation between supply partners to execute and generate the desired long-term risk mitigation, and to share success.
Additionally, it’s important to be aware of the fact that, while this blog post preaches collaboration, you and your supplier are separate companies, both which need to recognize and respect individualism. The desire to be closer partners is there, however, in reality there will always be internal and external competition for finite resources. This will, at times, result in decisions that may not be favorable to the overall partnership. Thus, it’s necessary to discuss these instances upfront, openly and honestly, as you should expect them to arise.
4. Share the Wins
Wins generated from collaborative efforts should always be shared. It’s easy to push for short-term wins, especially when they’re there for the taking. However, I argue that it’s more beneficial to play the long game, as the results of many shared short-term wins will be significantly greater than capturing the full benefits of a single event, while enjoying a much lower supply chain risk profile. The most effective way to create this environment of shared success is to develop supply agreements that incentivize collaboration through shared cost savings and increased revenue.
While it’s easy make decisions in favor of short-term benefits, more often than not, building strong long-term supplier relationships through collaboration and transparency will create much more sustained value and significantly reduce your supply chain risk profile.