Give away medical masks when you place an order. learn more

Best Practices for Managing Your Strategic Suppliers

Content powered by

Strategic vendors and suppliers provide products or services that meet your company’s major demand requirements and play a critical role in your supply chain. Your time and efforts in managing these suppliers contributes considerably to the success of your organization. Below are several best practices for strategic supplier management.

Identifying your strategic suppliers

Is the amount of spend your company allocates to any one particular supplier the only factor when identifying strategic suppliers? Absolutely not.

The best evaluation technique is whether or not you foresee a long-term relationship with the supplier to help your organization compete successfully in your marketplace.

Your strategic suppliers are closely linked with your company’s business strategy. Keeping this in mind, executive management teams must fully understand answers to the following questions in order to help companies identify truly strategic suppliers:

  1. What is your company’s business strategy in your marketplace?
  2. Do you have a plan in place to accommodate changes in your business strategy, and how would changes in demand impact your purchasing decisions and spend?
  3. How do your products and solutions meet your customers’ needs today? How do anticipate your customers’ needs changing in the future?
  4. How do you anticipate products and services purchased today integrating into your products and solutions in the future? (Direct procurement)
  5. Which products or services purchased (and consumed internally) to run your business today do you see becoming impacted based on how you may purchase in the future? (Indirect procurement)
  6. Which suppliers are best at delivering what you need today?
  7. Which suppliers have the best strategy (currently in place) to deliver what you anticipate you may need in the future?
Supplier strategic alignment

Suppliers that meet your current and future needs should be acknowledged for long-term cooperation. Make sure the strategies implemented by your suppliers are aligned with your own strategy. Also, perform due diligence on new or emerging suppliers and existing suppliers quickly moving into your target market.

Strategic supplier management decisions should not be left solely to the internal procurement functional group. Business teams encompassing members from various functional groups across the enterprise should also be tapped to provide valuable input for your company’s anticipated transition needs and business strategy moving forward.

Driven by procurement, separate functions within your company can still cooperate to define the planned view, demand forecast, recruitment, and management of strategic suppliers.

Supplier evaluation and negotiating power

Evaluating strategic suppliers prior to negotiating with each is very important. So, what type of homework should you do? In most cases, strategic suppliers have very good negotiating power and leverage.

Below are some hints how you can learn to better understand your potential strategic suppliers’ overall relationship with your company and leverage your company’s advantages to achieve win-win outcomes after the negotiations are complete.

Keep in mind, strategic suppliers can typically be top-tier companies in the marketplace and therefore have strong industry influence.

In addition to purchasing volume consolidations, alliances from your partnerships with your strategic suppliers can improve both your chances to win customers (together) and further encourage your strategic suppliers’ willingness to cooperate.

Your company’s procurement department should keep in close contact with your members in your company’s strategic alliances group.

Your procurement department by itself may not be able to adequately be on equal footing with the often overbearing influence a strategic supplier will likely have.

Beyond the immediate walls of your internal company procurement department, your company’s strategic alliances manager in charge of partnerships with strategic suppliers should understand any potential strategic suppliers very well.

For instance, alliance managers might already have planned ideas how your company can cooperate with particular alliance partners to achieve targeted sales revenues, in the coming three years, for example. If so, you should understand this plan and leverage such numbers during your negotiations.

Supplier savings considerations

Savings, in this situation, should not be measured on a case-by-case manner. Price is not the only measurement of value you should receive (or perceive) from strategic suppliers. Market competition, industry benchmarks, potential rebate mechanisms, quality of service, and market penetration as a result of the cooperation with your strategic supplier should each be considered in your savings considerations.

Perceiving this can be very challenging. You will need to setup the right mechanisms to adequately isolate and track key savings with your strategic supplier. This will better guide your team in pursuing the real win-win cooperation with your strategic suppliers in the long run.

Strategic supplier performance evaluation

Performance evaluation provides you an opportunity to review the quality of product and services received from your supplier. This also creates opportunities for improvement from your suppliers.

You should invite related parties to attend this important process. These individuals would include, but not be limited to, business unit and production engineer representatives.

For strategic suppliers, you should evaluate the product and technology excellence, terms and conditions executed, service quality, communication effectiveness, high-level management engagement, and internal supplier dynamics, as well as the dynamics between all parties. You will evaluate whether supplier’s performance meets with your long-term cooperation expectations.

You should also be sensitive to your supplier’s financial status to better understand its business growth and financial drivers in your cooperation.