Especially in times when markets are changing rapidly, reliable suppliers are of crucial importance: The productivity and efficiency of many companies depends on whether agreed delivery commitments and quality are met – or not. However, strategically optimizing supplier development requires time, knowledge and resources. In our latest article on the blog, we explain the advantages that working with suppliers in a spirit of trust provides. Further, we discuss the challenges that companies face is this context and the strategies that they can apply in order to increase their competitiveness through viable relationships with their suppliers in the long term.
- What does strategic supplier development mean?
- Close cooperation with suppliers – the advantages for companies
- How strategic supplier development succeeds
- Challenges that exist in building stable supplier relationships
1. What does strategic supplier development mean?
The crises of recent years have made it clear time and again: long-term and stable relationships with suppliers increase companies’ competitiveness and strengthen their supply chain. Strategic supplier development is a part of supplier management. It is an ongoing process with the aim of continuously improving the relationship with the supplier and strengthening its competence.
A distinction is made between active and passive supplier development. In active supplier development, the customer and supplier are both actively involved in the processes and collaborate on strategies and targeted measures for improving performance. Examples include supplier training, the implementation of improvement plans, or the promotion of innovations in order to jointly develop new ideas or solutions. In this context, a high level of commitment is required from the customer as well as the supplier. In passive supplier development, the targets are defined by the customer, but the supplier is in charge of how to fulfill the agreements, identify weaknesses in their performance and optimize processes. In this case, the companies are not proactively involved in the development and implementation of supplier measures.
In strategic supplier development, however, the focus should always be on ensuring that both sides benefit from the collaboration. Collaboration between companies and suppliers allows information to be exchanged, resources to be shared, and workflows to be optimized. This is a key competitive advantage that the majority of the German companies surveyed in the context of the 17th Hermes Barometer consider to be a success-critical factor for greater efficiency in the supply chain.
2. Close cooperation with suppliers – the advantages for companies
Strategic supplier development combines several advantages for companies. On the one hand, those responsible can increase supplier quality: through careful selection, stable relationships and intensive exchange with suppliers, they can ensure that high quality standards are met and that errors can be identified and rectified at an early stage. They are supported in this by specialized SCM software, which facilitates monitoring and makes the supply chain more transparent. Optimized procurement, more efficiently designed logistics processes and the sharing of resources reduce costs. Joint planning and coordination of processes avoids delivery bottlenecks and deadlines can be better met. This leads to a strengthening of the supply chain, which in turn results in an increase in competitiveness.
On the other hand, companies benefit from the know-how of suppliers, who often bring expert knowledge and experience in specific areas: They thus gain access to new technologies or innovations and can also optimize or rethink their own processes and products in a new light. Another advantage is the reduction of risks. Strategic supplier development involves identifying alternative suppliers in addition to strengthening individual relationships and collaborating on risk management: Diversifying the supply chain can prevent serious bottlenecks from occurring in procurement and production. Regular audits and reviews also document supplier performance so that any problems can be identified at an early stage.
3. How strategic supplier development succeeds
Strategic supplier development is a promising method for companies to minimize the risk of supply chain disruptions and generate improved value together with their suppliers. As a rule, it takes place in several steps:
- Identifying key suppliers: First off, companies must find suppliers that are strategically relevant to their supply chain and capable of meeting requirements and demands. They need to provide the supplies of the core products and services and should be selected on the basis of key criteria such as reliability, flexibility, quality, strategic importance and innovative capability. In this context, it makes sense to establish fixed contact persons and responsible parties with clearly defined tasks right from the start in order to facilitate communication and to be able to act promptly in the event of a crisis.
- Setting performance targets and metrics: When selecting suppliers, performance targets should already be defined during negotiations in order to be able to measure and verify the extent to which agreements are being met. These include delivery reliability, product quality and innovation capability as well as cost optimization or compliance with delivery times.
- Evaluating suppliers: An important component of supplier management is the regular evaluation of suppliers. In this way, the strengths, but also the weaknesses of existing or potential suppliers can be objectively assessed and compared with others, and improvements can be worked on together. Evaluating suppliers can take a lot of time: Here`s where appropriate software solutions that take ISO standards into account can assist by minimizing the time required and the risk of wrong decisions. The software checks and evaluates the supplier on the basis of various criteria specified by the company. For example, the requirements of the planned EU Supply Chain Law can also be taken into account, thus ensuring legal compliance and protection.
- Developing measures to improve performance: The assessment results form the basis for defining concrete measures such as training, process optimization or project development so that suppliers can increase their efficiency, quality and innovative capability and develop further. Companies can actively support them in this process.
- Implementing and monitoring the measures: To ensure that performance improvement measures are implemented, they must also be monitored – through regular audits and performance reviews, for instance. This is essential in order to document progress and make any necessary corrections. At the same time, companies protect their reputation as well as their business processes by monitoring supplier performance.
- Recognizing long-term process: It is important not to rest on the choice of and commitment to a supplier, but to continuously work on the relationships, to promote them and also to put them to the test. After all, the goal is to build a partnership: Through feedbacks, regular meetings or joint project work, companies can enter into an active exchange with suppliers and increasingly promote and strengthen mutual trust.
These processes are facilitated by special technologies that improve the efficiency and effectiveness of collaboration: With collaboration software, companies and suppliers can share information in real time, make decisions together and solve problems. AI technologies can be used to analyze large volumes of data, predict trends or identify optimization potential. Cloud applications, in turn, enable the sharing of data and the secure exchange of files and information between partners.
4. Challenges that exist in building stable supplier relationships
To make collaboration work successfully, constant risk management is essential in addition to the individual steps that need to be taken to consolidate supplier relationships. Unexpected problems can always occur – so companies should regularly conduct risk analyses and proactively work on risk strategies in order to be able to act promptly in the event of an emergency.
Risks and challenges in strategic supplier development may include:
- Dependence on key suppliers: The supply chain is particularly susceptible to disruption when companies rely exclusively on one supplier. If this supplier abruptly ceases business or the quality of its products or services deteriorates, the affected companies lack the option of using alternative suppliers.
- Additional costs: Meetings, intensive communication, monitoring of performance – it costs time, money and resources to build sustainable, long-term partnerships with suppliers.
- Violation of compliance standards: Companies can unintentionally violate ethics and compliance rules through their suppliers, for example in the area of environmental protection or labor law. Therefore, it is important to repeatedly review and evaluate the compliance of suppliers’ agreements and performance.
- Faulty, unreliable communication: Clear and effective communication between the parties involved is of central importance for strategic supplier development. Otherwise, misunderstandings or errors can quickly arise that negatively impact supply chain operations or business relationships.
For successful cooperation, it is therefore important that companies are in constant exchange with their suppliers, agree on processes and ensure the necessary transparency in the supply chain so that all parties involved can work together on solutions.
5. Conclusion: Strategic supplier development for long-term successes
Strategic supplier development requires a systematic and proactive approach. In the best case, it is a win-win situation: Companies benefit from the reliability as well as the know-how and innovative strength of their suppliers, while the latter can increase and optimize their capabilities and processes through collaboration with the companies. Monitoring supplier performance is of crucial importance in this context, as it enables weak points, supply bottlenecks or quality loss to be identified at an early stage. By collaboratively reviewing processes, the customer and supplier can develop and implement measures to improve performance. But last but not least, above all, a trusting exchange between supply chain partners strengthens cooperation and ensures a sustainable relationship even in times of crisis. Therefore, strategic supplier development is always an ongoing process that is never completed. It aims at long-term success and supports companies in making their supply chain more stable, resilient and efficient.