Managing a small number of the same suppliers is relatively easy. But when you have many suppliers, and a steady stream of new ones, things can get tricky. Following is a systematic process for onboarding new suppliers without disrupting engagements with existing partners.
Step 1: Develop a standard process for supply chain discovery, shortlisting and approval. Standardization allows you to leverage the experiences you have had with past and existing suppliers so you can extract optimal value from your relationships. It also minimizes the risk of choosing the wrong supplier and adversely affecting your organization’s operations.
Investigate supplier reliability and scalability by contacting its current or previous clients and asking them to share their experiences. Reach out to any references provided as well. Assess the supplier’s vision, mission and practices to determine if these fit your organization’s culture. Check the company’s online reviews to find out if there is a history of complaints. Understand if and how these were resolved. Find out if the supplier has crisis management, business continuity and disaster recovery procedures that are routinely tested. Confirm financial stability and run a credit check.
Step 2: Collect and proactively maintain a single database of all suppliers. This serves as a single source of truth — although that’s not the only benefit. For instance, centralization makes it easier to compare two suppliers providing similar services. You can also more readily known when a new supplier is offering a product that a current supplier already offers. In large organizations with hundreds or thousands of suppliers, this is a real risk.
The database should classify suppliers in multiple ways, such as by product, contract value, company size and criticality to your operations. The most mission-critical suppliers require the most extensive evaluation for suitability. They are also the ones whose financial stability matters most. If they were to collapse or close without warning, that could trigger a crisis for you and make it more difficult for you to meet customer expectations.
Step 3: Draw up a robust contract. It is essential to have a contract with any supplier you intend to purchase from on a regular basis. A best practice is to develop a standard contract for each new supplier that covers communication protocol, delivery terms, lead times, pricing, payment terms, service description and more. Also, leave room for contract negotiation. You may have to vary the terms of the contract for new suppliers depending on the type of product and its importance to your operations. In certain instances, especially for suppliers whose business is orders of magnitude larger than yours, you may have to either sign the contract the supplier presents or come up with an agreement that is mutually acceptable.
Terms of payment are especially important. And once you define payment timelines, stick to them. This keeps your suppliers motivated to work with you. While a contract provides legal protection, it’s only as good as both parties' commitment to it. No company gets into a contract in the hope of disputing it in future. Agree to terms that you can live with.
Step 4: Monitor performance. Define key performance indicators at the beginning and keep track of complaints and defects. If you run into a problem in the relationship, disengaging should be the last resort — except for serious contractual violations such as fraud or counterfeit products. In many ways, you should handle supplier performance as you would employee performance. The first time something goes wrong, formally communicate the issue and set out your expectations. If the issue repeats itself, allude to the breach of contract and issue a warning showing intent to invoke contractual termination clauses. Repeated violation should lead to the termination of the relationship.
Step 5: Leverage supply chain technology. The more suppliers you work with, the more important technology becomes in managing relationships. Supply chain technology can help streamline engagement. Again, creating a central database of suppliers is an important step, but it is only one aspect of the digitization and automation of your supply chain. Aim to have a technology-driven workflow as well. Supply chain technology advances transparency, improves process controls, increases productivity, cuts costs, reduces cycle times and establishes mutual trust. Where possible, grant your most mission-critical suppliers access to their information in your database.
Supplier relationship management is a journey
Building your team of suppliers is always a work in progress: New ones come in, older ones leave, and existing contracts and processes are re-engineered and renegotiated. As new suppliers come on board, it’s vital that they are introduced into your operations in a way that does not disrupt your supply chain. Bringing in a new supplier should be a systematic, predictable process that enables you to move away from handling tactical matters to spending more time working toward strategic opportunities, exploring new markets and strengthening relationships.
Stefan Gergely is head of growth at Soleadify as well as a growth leader in the Romanian startup scene. Contact him through LinkedIn or Twitter.
Learn more about working with suppliers with the ASCM Supply Chain Procurement Certificate.