Introduction
Every day, billions of transactions are made: over the phone, in person, and online…but how often do you receive exactly what you expected? How often is it REALLY the best value and the lowest price? And how often does your order show up late, or at the wrong place?
The missing piece to having accurate and efficient orders is having strong supplier relationships.
Supplier loyalty a key to job site timeliness, which is something that on-site workers in the Canadian construction industry understand very well. In this post, we will explain what supplier relationship management is and why it’s important, as well as provide 4 ways that you can be the best customer, and 3 criteria to evaluate who is the best supplier for your company.
Table of Contents
- What is Supplier Relationship Management?
- Why is Supplier Relationship Management Important?
- 4 Ways to be the Best Customer
- 3 Criteria for Picking the Best Supplier
What is Supplier Relationship Management?
Supplier Relationship Management helps your company maintain and nurture your supplier relations. You should be evaluating your current suppliers to ensure that you are receiving the best value. Also, proper guidelines (discussed below) help position your company in a way that gets you the most benefit from your transactional purchases.
Having strong supplier relationships allows your company to get preferred pricing from your transactional purchase suppliers. By reducing their costs through efficient processes, you are enhancing the value of their margin. You may even be able to get a bargaining piece to demand a lower price in exchange for being a low-cost customer.
Why is Supplier Relationship Management Important?
Suppliers that deal with transactional purchases typically only have a 5-6% margin. This means that their ideal is moving a high volume of inventory to profit from those low margins. So, as a contractor, if you are constantly putting in last-minute orders, the supplier has to negotiate with the manufacturer to still profit from the increased cost of rush orders.
Customer Satisfaction is Worthless, Customer Loyalty is Priceless
Jeffrey Gitomer, 1998
They will start charging you for the costs incurred from rushed sourcing, delays in receiving deliveries, and additional time needed for paperwork.
Ideally, you want a supplier that commits to set pricing in order to ensure cost savings for both parties, but first, you need to understand how you can be the best customer, and how to find the best supplier.
4 Ways to be the Best Customer
Supplier loyalty stems from feeling respected and valued by the contractor, and if the supplier feels that they are being taken advantage of, they will stop taking that loyalty into consideration. Instead, consider implementing these 4 rules in your organization:
1. Do NOT Bid Shop
Bid shopping is the easiest way to win the battle but lose the war. This strategy is terrible because suppliers will stop working with you, and will advise their competitors to stay away.
NOTE: do not confuse this with competitive pricing!
Bid shopping is shortsighted and disengages everyone from working with you. Ultimately, honesty and transparency will help you improve your supplier relations. Make sure that your company has a strict purchase requisition process.
2. Pay Your Bills On Time
The biggest problem that suppliers face is getting contractors to pay them in a timely manner. This lack of follow-through is the easiest way to ruin your relationship with your supplier. It is essential to leverage the company’s ability to pay vendors quickly through efficient purchasing approval and accurate record maintenance.
“Your vendors will prioritize your company if you prioritize theirs.”
Kevin Shuler, 2020
Make sure that your on-site team is held accountable for supplying information to accounting through packing slips, so that your accountants can actually pay the suppliers on time.
3. Reduce Rush Orders
If you are constantly putting in orders for items expected on-site the next day, you create friction with your suppliers, putting them into high stress and low reward situations. Rush orders mean that a transaction with $200 worth of items is now $400 because of additional shipping and delivery charges.
Instead, if you reduce the number of orders that are issued, you will increase the value of the dollars spent. By planning ahead of time and keeping your supplier in the loop of project progression and possible future orders, you can quickly become a development customer, where they will invest more time and give you more savings to gain more mutual benefits.
If you are always ordering daily, review your process. See if you can order once a week instead. For example, make a rule that you should order another pallet when you have six bags of grout left.
4. Ensure Order Request Accuracy
If your purchasing requisitions are constantly inaccurate, then your costs will go up. Accuracy helps suppliers and your accounting team know exactly what to expect.
However, purchasing ping-pong may cause contractors to be charged more for the burden of spending additional time to meet expectations and constraints.
Remember: Extra work makes suppliers increase the price their cost to you, and therefore your price.
This is why it is crucial to have a written copy of the material request.
This copy means not just texting your supplier, but sending them a detailed email of what you are requesting.
3 Criteria for Picking the Best Supplier
The current model that many contractors have is picking their favorite — but not necessarily the best — supplier. It is essential to understand the criteria by which contractors should choose suppliers.
1. Quality
Quality is one of the most critical factors. Product quality should consistently meet the specified requirements, as any discrepancies can directly affect the finished goods’ quality. Suppliers can also improve quality through value-adding — providing any additional information or services when needed.
This criteria also includes the quality of the supplier processes. A quality driven supplier will ensure that there is no rework needed for accounting.
2. Cost
Cost, when evaluating suppliers, should also include the total cost of ownership, which is not only the unit price.
This calculation includes payment terms, discounts, ordering and carrying costs, logistics and maintenance costs, and more. Cost can be reduced through Contractor Quality Control Certification for your supplier, which outsources your quality control process to the supplier facility.
Another critical aspect of cost is research cost. Certain company policies require you to go out for competitive pricing on low-cost items, where the price variance ends up being only 2-3%. Ultimately, the research cost wipes out the savings of finding the right supplier.
3. Delivery
Delivery is essential when selecting a supplier, as good lead times can reduce or even eliminate waste related to purchasing raw materials. Supplier reliability is an important characteristic, which can again be reinforced by ensuring timely responses and servicing. Timely suppliers reduce the risk of materials running out, paying additional transportation costs, and other storage and Inventory-related expenses.
Consider Implementing a Just-in-Time strategy for delivery.
Conclusion
Supplier Relationship management is key to gaining the most value from your transactional purchases. First, you need to make sure that you are the best customer by comparing suppliers fairly, paying them on time, reducing rush order frequency, and ensuring accurate requisitions. Second, by evaluating suppliers based on Quality, Cost, and Delivery, you will make sure that your company is gaining the most value from your suppliers.
Are you ready to lower your costs through proper supplier relationship management?
Are you ready to help your business have the most efficient PO process? Purchase orders issued from QuoteToMe are timely, accurate, and fast – all with minimal effort from the user!
Note about the Author
Natasha Mager is a Customer Success Specialist at QuoteToMe. She is passionate about inbound marketing and organic growth. Her goal is to help the construction industry learn how they can optimize their purchasing processes. You can find Natasha on Linkedin.