How to manage supplier relationships effectively

 

How to manage supplier relationships effectively

What is supplier relationship management?

“Supplier relationship management is the process of strategically engaging a company’s most important suppliers and service providers with utmost care to maximize long-term value and deliver mutual success,” said Doug Roginson, Head of Supplier Relationship Management at JPMorganChase. 

Unlike vendor management, which typically handles day-to-day oversight and contract compliance monitoring, supplier relationship management focuses on the bigger picture: turning important suppliers into strategic allies that drive a company’s growth and success through reliability, innovation and cost-effectiveness.       

Supplier relationship management best practices

Building strong supplier relationships takes consistent, dedicated work. These tactics can help: 

1. Develop a supplier segmentation strategy

Prioritize supplier relationships to ensure your business invests time and resources where quality relationships deliver the greatest impact. A vendor supplying a useful-but-nonessential commodity requires less attention than one with a unique, business-critical product.

A supplier segmentation strategy evaluates not just spend amounts but also each supplier’s operational and technical importance. Performance history should guide your categorization as well. 

“You can’t pursue a heightened relationship if you’re constantly focused on contract noncompliance and day-to-day vendor management issues like missed deadlines, quality issues, budget overruns and invoicing issues,” Roginson said. 

2. Use data to drive continuous improvement 

Regularly monitor key performance indicators and relationship health metrics to manage supplier relationships proactively, addressing issues before they escalate. 

Share data with suppliers to foster collaborative problem-solving and efficiency gains. JPMorganChase provides its own suppliers with a tool offering access to select company news and financial, performance and risk-management metrics, along with invoicing details and strategic initiative information to elevate account management.   

Tackling operational issues together builds the foundation for more strategic, higher-value collaboration opportunities.

“Implementing solutions to run the business more efficiently leads to opportunities to grow the business more effectively,” Roginson said. “We can’t pragmatically talk about business development and innovation if we have lingering issues that aren’t being successfully addressed and remediated.” 

3. Build trust through open communication

Transparency extends beyond data sharing. Even after thoroughly vetting a supplier, both parties should establish structured communication channels and regular review meetings where the business and its supplier can speak candidly and maintain accountability. This foundation helps build the trust necessary for high-impact collaboration, particularly when sharing sensitive strategic information. 

“The goal is to get beyond negotiating rates, service levels and delivery schedules and work toward market-making, brand-differentiating joint value creation,” Roginson said. “That takes trust created through truth and transparency.” 

4. Align objectives for mutual benefit

After establishing strong performance metrics and open communication, look for opportunities to align your business’s strategic objectives with supplier goals. 

Consider this scenario: Your business expects surging demand for a specialty product, but your sole supplier is at maximum capacity and hesitates to expand based only on forecasts. Adding a second supplier risks delays and inconsistency. 

With a strong relationship in place, you could explore offering a minimum order commitment that gives your supplier the confidence to invest in expansion and helps them secure credit to fund it. That creates mutual growth opportunities.    

Finding mutually beneficial approaches to everyday operations can lay the groundwork for larger strategic initiatives. Start by establishing an accounts payable program that balances the buyer’s and supplier’s efforts to optimize working capital—which also helps minimize supply chain disruptions caused by supplier cash flow issues. Incentivizing payment methods such as credit cards, single-use accounts and supply chain finance can help buyers offer suppliers fast payment while using credit to extend their access to capital. 

5. Reward supplier contributions and invest in development

A preferred supplier program builds stronger relationships with key suppliers by recognizing exceptional performance and providing development opportunities. 

JPMorganChase’s Gold Supplier Program, for instance, gives top-performing and exclusive suppliers access to dedicated communication channels, simplified processes, strategic insights and valuable networking opportunities.

“Suppliers want insight, access and opportunities—the goal of the Gold Supplier Program is to deliver on those wishes,” Roginson said. “We strengthen the working relationship with our supply chain community, while improving a supplier’s level of success at JPMorganChase.”

When buyers invest in suppliers’ success, both parties benefit. Healthy, aligned and resilient suppliers face fewer challenges that might otherwise lead to supply chain disruptions. 

How to manage supplier relationships effectively