How has your business been weathering supply chain challenges? In the last few years, it’s probably been a mixed bag. But you’re not alone. As shocks in the last few years have led to far-reaching consequences for business leaders and consumers, supply chain management is under the microscope -- and headed for a hard reset.
When supply chain links seize up, manufacturers demand for semiconductors has risen, while supply dwindled due to limited production capacity. Products like electric vehicles were heavily impacted by shortages, and many EV-makers were forced to slash production timelines as they struggled to source components and absorb the rising prices.
Avoiding such outcomes can be difficult, but there are strategies to stabilize resources and alleviate supply chain disruptions. Forming strategic supplier relationships can lessen the burden on manufacturers and suppliers alike. However, like every good relationship, such arrangements are reciprocal and involve mutual effort, so they should be entered into with eyes wide open.
How to Build a Strategic Partnership
Before entering a partnership, each side should clearly state what it hopes to gain. Relationships between suppliers and manufacturers, or buyers, should build trust and provide equal benefits. Both sides must be willing and prepared to follow through on commitments.
Sentiment is also an important ingredient in a strategic partnership. Each side expressing a willingness to enter and maintain a partnership matters greatly to the relationship’s success.
Lastly, an agreement defining the parameters and expectations of the partnership should be put in place as a reference for both parties.
Having these conversations from the start sets the tone for good communication practices, ensuring transparency throughout the purchasing process and engendering long-term stability.
The Advantages of a Strategic Relationship
In times of supply constraints, the temptation to cast as wide a net as possible is powerful but this approach is ultimately counterproductive and highly inefficient. Working with multiple supply sources can heat up the market and cause price inflation, which negatively affects both manufacturers and suppliers. Maintaining a committed partnership with a singular or vetted, small group of suppliers is ultimately the simplest (and most cost-efficient) way to offset the potential volatility of working with a large group of vendors.
Benefits for Suppliers:
- Forecast commitments: Manufacturers can provide suppliers with an estimate for product launch requirements, making it easier for suppliers to assign allocation.
- Enhanced feedback: Receiving informed comments on procedures and products improves a supplier’s strategies and offers.
- Steady revenue stream: Predictable financials help suppliers develop and achieve fiscal targets.
- Price assurance: Manufacturers can strengthen their relationship with suppliers by extending rebates based on the volume of spend or market share, grant suppliers right of first refusal on orders, and provide flexibility that gives the supplier time to consider these offers.
Benefits for Buyers:
- Improved responsiveness: Buyers should be able to count on timely responses; having a dedicated sales representative adds a personal touch that streamlines communication.
- Guaranteed supply availability: Suppliers can offer a first and last look at opportunities which can result in more efficient lead-time quotes against competitors. This gives manufacturers an advantage over the competition.
- Price efficiency: Working with a dedicated supplier lowers the chances of component prices being driven up by bidding wars within the market.
- Quality assurance: Ensuring suppliers have an adequate quality assurance process builds trust and strengthens the relationship through consistent delivery of functional products.
Preventing Partnership Pitfalls
Tipping the scales to the benefit of one partner over the other creates a barrier to success for strategic supplier relationships. To maintain the connection in good faith, both parties should continually meet expectations, assess and avoid risks, and reap equal advantages. Schedule periodic business reviews to assess performance metrics and specify action items that hold both sides accountable. Reestablishing expectations on a regular basis helps align mutual goals, helping to ensure lasting success in your partnership.
Working with an independent distributor like Fusion Worldwide gives buyers access to established sourcing connections to maintain a healthy supply chain. With Fusion Worldwide, you can count on maintaining a long-term, mutually beneficial relationship to successfully manage unforeseen challenges.
