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This post is one in a series designed to help SME businesses benchmark their business and create a best practice business improvement plan across all of their business processes.  You can find the links to the full series here.  

Image of hand writing on screen words associated with supply chainWhy is it important to maintain strong relationships with suppliers and contractors?

It does not matter what sort of business it is, but very few businesses operate in total vertical isolation. The clear majority of businesses operate in a “quasi partnership” position with others, either via the supply of stock for resale or the use of their services as part of a wider offering.

Suppliers, contractors, providers etc, must all be viewed in the context of being important operational elements to your business. A failure by one, can have significant flow on implications to your business.

Strong relationships and a full operational understanding of the quality of your supplier’s delivery will not only position for more balanced rates/costings, but will also reduce your operational risk. By taking a balanced, matrix approach to cost, quality and risk, you will also avoid the pitfalls associated with just taking the “cheap supplier”.

How does your business measure up?

Here’s a checklist to help you determine how well you are managing your relationships with your supplier and contractors.

Cost – the pricing or cost delivered by a supplier can make or break a transaction. So, whilst cost is not the only factor in determining the value of a supplier, it remains an important commercial component.

  • By supplier type/category, we undertake regular checks to ensure that our supply cost is market based.
  • All of our supply terms are appropriately aligned to our own cash/trading cycle.
  • We are making sufficient margin from our supplies for the sustainable viability of our business.

Quality – getting the quality of the supply you required – under acceptable terms, drives efficiency and confidence.

  • All of our types of supply are evaluated for the quality of their delivery, and how it impacts our business.
  • As part of the supplier terms, we either have service quality agreements or strong working relationships with all off our suppliers to ensure quality delivery.
  • We have defined processes in our business to monitor supplier quality.
  • If supplier quality falls below agreed levels, then we take action to either remedy or move to a new supplier.

Risk – the predictability of the quality of the service being delivered – when you need it.

  • Over time, we have built a list of the risk elements in our business, so we know what the critical supplier risks are in our business – and why.
  • We have identified a way of mitigating all the major supplier risks in our business.
  • We measure, monitor and manage our supplier risks as a business to ensure that we are always adequately protected.

Supplier Dependency

  • We have a diversified range of suppliers, with no single supplier providing more than 20% (by value) of our cost of goods.
  • Due to our diversified supply options, we have been able negotiate balanced/fair supply terms.
  • In the event of a supplier failing, we have already identified at least one suitable replacement supplier so our business is not put in jeopardy.

Assess your business against other best practice business operations benchmarks

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