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Building Relationships For Better Supply Chain Management

By its very nature, supply chain management is dependent on connections and relationships. Much ground is covered within the realm of defining those relationships. At any given moment, those relationships can be tactical, strategic, internal and transactional. One relationship dynamic might exist between parties or all can exist at the same time. Additionally, relationships can exist among the supply chain community.

Generally, this community is clustered around three groups to maintain a balance in supply chain processes. The academic community, manufacturers and working practitioners work together to influence supply chain delivery without one group undermining the other.

Principal Reasons for Supply Chain Relationships

A principal reason for leveraging supply chain relationships is to bring together individual contributions and talents. Such collaboration allows each member to harness the synergistic potential that is much stronger when bonded together than if each acted separately. This can lock out competitors while leveraging the expertise and skills that each member brings to the partnership.

However, this important aspect of implementing supply chain management does not come without challenges. In particular, it is difficult to find effective methods that support building an appropriate relationship. Partnerships can also become costly due to the time and effort required to be successful.

Because of this, partnering with every third-party provider, supplier or customer is not a good idea. Rather, a company should make sure that interactions that contribute the most benefit to its operations relationships receive scarce resources for relationship building. This presents another challenge in which manager must determine whether a potential relationship can yield the most in competitive advantage.

A Framework for Collaboration

Generally, building supply chain relationships start with a framework used to structure the best interaction with essential suppliers, third-party providers and/or customers. There should be a history of working together and both parties believe there is potential for a solid partnership. Making sure these conditions are met also requires clarifying expectations. With this framework, both parties can mutually agree on the goals of the relationship.

In addition, a framework for collaboration can also be used in situations where conditions for successful partnership have not been met. Some new relationships where no transactional history exists can have high potential. Other relationships where each there is an imbalance could be important for each side.

Developing product and service agreements is another area that could benefit from a collaboration framework. Managers at each company should identify key suppliers and customers for business-to-business relationships. At this point, expectations can be clarified as both parties agree on goals that are mutually beneficial to the relationship.

Build Internal Relationships First

Before a company can begin building better supply chain relationships with external partners, it must first have strong internal relationships. After all, the atmosphere is friendlier within the confines of a company’s four walls. Open communications between different departments is just the beginning. All departments should be in lockstep with company goals and objectives.

Typically, internal relationships are built through joint problem solving and joint planning efforts. Cross-functional teams are motivated with a higher purpose other than doing what is politically correct. Everyone in the company share in discussions, product development and anything else that is essential to core business objectives.

Manufacturing and distribution should be plugged into sales and marketing activities. It is nearly impossible for sourcing and procurement to operate independently of other functions within the supply chain. Additionally, the entire supply chain organization cannot be kept out of strategic plans by senior management. In turn, the supply chain organization must communicate with senior management how it can support those strategies. The company that is the master of its domain is prepared to manage external relationships.

Relationships between Supply Chain Participants

Once a company builds its internal relationships, it should begin establishing working relationships with suppliers and customers. Relationships between supply chain participants are built over a period of time. These partnerships must not exist in name only, but rather they should consist of a strong network that eases an already complicated process.

Nevertheless, a partnership with every participant in the supply chain is not a reasonable expectation. Because of the nature of the business, there are limits to effectively maintaining multiple partnerships. This does not, however, negate the importance of sustaining high communication and high trust in mutually beneficial relationships.

Suppliers and customers who are essential to a company’s supply chain should be identified. The relationship is cultivated by doing what is in the best interest of both sides. Even if a large company has some leverage in dictating processes, prices and terms to suppliers, it must uphold the relationship concept.

Granted, there are very few companies who can dictate such things while having the option to go elsewhere. Still, the purpose of establishing relationships is not to out-maneuver the other side. The primary purpose is to have strong, positive relationships that are built on things that lead to successful supply chain operations. Everyone benefits equally because the connection is understood in the proper context.

Ideally, the supply chain relationship connects suppliers and customers in ways that allow an easy exchange of information. Both parties benefit from communicating events and data associated with an increase – or decrease – in demand. By knowing what to expect, the direction of strategic plans also benefits both sides. Costs can be reduced and quality is improved since both parties understand each other’s capabilities and capacities.

Following what is known as the collaborative planning, forecasting and replenishment process works for all supply chain participants. A company should know customer strategies and directions, just as customers should be aware of the operational process of the company. Understanding upstream and downstream issues are important regardless to where one party sits in the supply chain flow.

To accomplish this, there must be a concerted effort to maintain a positive attitude. It also helps to have a fundamental culture of building strong relationships.

Relationships with Logistics Service Providers

The next important relationship to build is with logistics service providers. This appropriate after internal and external connections have been addressed. Also known as third-party logistics providers, they are essential to the supply chain relationship for different reasons. Typically, logistics providers will offer a combination of key services to manage the flow of goods and materials.

Like external relationships, open communication is a must for successful relationships with logistics providers. While this seems to state the obvious, companies that thrive on supply chain management must view interactions as more than paying a vendor to provide services. By all accounts, logistics service providers are the key to making supply chain processes work. Not only so, but these providers also solve the inevitable problems that crop up.

The relationship does not begin and end with having open communications. Companies that have relationships with logistics service providers require a constant effort of paying attention to processes. These providers must know when a change in strategy or an introduction of new customers and/or products. Regular dialogue is necessary to make sure areas of value-added services are not overlooked.

For some companies, it can be more difficult to manage a relationship with logistics service providers than with suppliers or customers. There is one relationship that spans multiple functions within the company. Nevertheless, the quality of the relationship with logistics providers can profoundly affect the outcome quality of supply chains. Best results are born out of mutual trust and open communication. This is where providers can devise on-target solutions to improve supply chain processes.

Conclusion

When it comes to building relationships, companies can be successful when time is invested into assessing qualities that offers mutual benefits. As with all aspects related to supply chain management, solid partnerships goes beyond simply making a purchase. Sustainable relationships are a two-way street where both parties invest in long-term supply chain success.