Beyond the Contract: Unlock Value with Stronger Buyer / Supplier Relationships

Optimizing the supply chain can be a pressing priority for global companies. While buyer/supplier relationships may appear straightforward, they can be complex and require diplomacy and tact to create and maintain them.

However, the time and energy needed to support such relationships can be worth the effort. Constructive and supportive buyer/supplier relationships can help organizations generate efficiencies at every supply chain touchpoint, including freight, logistics, operations, and procurement.

How will those relationships evolve, and how can organizations establish and maintain mutually beneficial partnerships?

Pressure Mounts to Rein in Costs

Not surprisingly, many organizations are reevaluating their supplier relationships post-pandemic and in response to a slowing economy and escalating costs. A survey of 101 logistics professionals by SaaS platform DispatchTrack found 72% of companies experiencing significant challenges, with the top ones reported related to fuel costs, inflation, delays, unpredictability, driver shortages, and lost business due to the economy.

For some businesses, wrestling with these challenges can mean forcing suppliers to revisit their pricing. However, there are more collaborative tactics that may help optimize buyer/supplier relationships.

Re-Negotiate Contracts

Third-party relationships often function based on terms and conditions established years prior. Instead of consigning a supplier contract to a digital repository, it can be a living document. Revisiting and updating the agreement to reflect the realities of today’s marketplace can be mutually beneficial. 

For example, requiring a supplier to stick to old contract terms means they cannot charge prices based on current market rates. Additionally, uncompetitive payment terms can create cash flow issues for the supplier, especially if actual payments take longer than the contract states. 

Being willing to renegotiate contract terms can show suppliers the goal is to foster stronger, long-term partnerships. It can be helpful to have a revised contract to accurately reflect both organizations' economic realities. 

Prioritize Communication

Effective communication can be at the heart of every successful buyer/supplier relationship. If left unaddressed, shipping delays, quality problems, and price discrepancies can harm buyer/supplier relationships. 

According to a September 2022 survey of 462 procurement leaders by consulting firm Forrester, 66% said they collaborate with suppliers to increase resilience. Furthermore, 51% planned to adjust their strategy by collaborating with even more suppliers.

Open communication can make it more likely a buyer and supplier will share their respective challenges and engage in quick, collaborative problem-solving.

Foster a Data-Driven Partnership  

While communication and collaboration can underpin successful vendor partnerships, timely, accurate, and relevant data can also be critical to effective supply chain management. This can include past transactions, market forecasts, and internal production data, including staffing levels and plant operating capacity.

Technology can play an increasingly dominant role in facilitating better communication and delivering the data companies need to optimize their supply chain. According to December 2022 data from audit, tax and advisory firm KPMG, 6 in 10 organizations planned to invest in digital technology to improve their supply chain performance and make data more available to the entire supply chain. 

Information sharing can be a two-way street, as the buyer and supplier both possess data that can yield critical insights. Gathering and centralizing such data can make it easier to derive actionable intelligence. It also can provide a single source of “truth” that both parties can reference and rely upon to coordinate their efforts.

For example, if a buyer provides forecasts of their planned production to critical suppliers, that will likely make it easier for each partner to align their activities and fulfill the resulting demand. Conversely, if a buyer intends to cut back on their order volume, suppliers can use the forecast data to right-size their operations.

The Takeaway

Empathy and understanding can help improve coordination and growth, which ultimately can impact the bottom line of both the buyer and supplier. To navigate uncertain economic times, collaborative partnerships can matter more than ever. Organizations can rethink and redefine the buyer/supplier relationship, building a foundation for a mutually beneficial partnership designed to function even in a challenging economic environment.