As new research reveals seven in ten businesses are looking for longer-term relationships with their clients than they were five years ago, we explore the shifting dynamic in supplier management – and what corporates can do to nurture mutually-beneficial relationships with their suppliers.
Supplier relationships. They’re not always visible, but they are vital. Supply chains are hitting the headlines often at the moment. Many businesses are wondering how political and economic uncertainty will affect their business in the months and years to come; particularly those trading with business-to-business (B2B) clients across the EU. In times like these, maintaining a mutually-beneficial supplier relationship is a key area of focus. As we move into a new era, how can companies ensure they are getting the most out of their supplier relationships?
Why is supplier relationship management a thing?
Supplier relationship management came to life as a concept in 1983 when McKinsey consultant Peter Kraljic called for corporate buyers to become more proactive in their supply management. Kraljic argued many purchasing managers’ skills and outlooks had been formed 20 years before “in an era of relative stability” – and hadn’t changed since. He argued that the language needed to change; what used to be known as ‘purchasing’ would be better described as ‘supply management’. It seems like a small shift, but where ‘purchasing’ indicates a one-way transaction, supply management speaks more to an ongoing relationship, where buyers and providers continually accept and adjust to political and economic factors.
How are supplier relationships changing?
Things have become more fluid and intuitive in recent years. By improving communication and smoothing out processes, the rise of basic technology like email and smartphones, as well as apps, tools and platforms, has empowered businesses to cultivate better relationships with suppliers and customers alike. It’s not just the technology though; we also have clear evidence that attitudes in business are changing for the better.
The value senior procurement leaders place on supplier relationships has also changed significantly over the past five years. New research from Barclaycard Commercial Payments has found that almost three-quarters (73 per cent) of procurement leaders say their supplier relationships are more mutually-beneficial than they used to be, with 76 per cent saying they now communicate more openly with suppliers about business strategy.
The length of supplier relationships is shifting too. Seven in ten (69 per cent) of leaders say they are looking for longer supplier relationships than they were five years ago, with 59 per cent saying their supplier contracts are based on a two-year minimum.
Better late than never?
The Barclaycard research has also revealed an increased focus on late payments. Six in ten (61 per cent) businesses are more concerned about paying suppliers on time than they were five years ago. As it stands, respondents said they currently pay suppliers on schedule 73 per cent of the time. When asked where they are coming up against stumbling blocks, 30 per cent cited slow internal processes as the main culprit. This is where relationships can break down. To help businesses nurture their supplier relationships effectively, Barclaycard Commercial Payments is launching Precisionpay Hub – a new platform designed to make it easier for buyers and suppliers to interact and get business and payment terms in place to suit all parties.
Of the launch, Marc Pettican, CEO of Barclaycard Commercial Payments, said: “It’s encouraging to see that UK businesses are looking to develop longer-term and more collaborative supplier relationships, built on trust and transparency. To achieve this, it is vital that they have access to tools and systems that help them communicate with service providers effectively. With the launch of the Precisionpay Hub, we are proud to be the first UK issuer to provide a platform to help buyers and suppliers manage invoice settlement. By connecting businesses directly to their suppliers, we hope to simplify the procurement process, saving both parties time and money, while ensuring suppliers get paid on time more often.”
Once more with feeling
Whatever business you’re in, it’s important to see your partners as human. We tend to think of the B2B world as being fairly sterile and unemotional when compared with the consumer space. In marketing, business-to-consumer (B2C) advertisers often take a more creative approach than their B2B counterparts, using emotive imagery and music to get customers interested in their activewear, razors or gravy granules. B2B advertisers often lean towards a rational approach – adopting a more matter-of-fact attitude to appeal to buyers based on business value. This may not need to be the case. In an often-cited piece of research, back in 2013 a survey of purchasers carried out by Google across multiple industries revealed that B2B buyers are far more emotionally connected with their vendors than consumers are to their favourite B2C brands. When you are buying on behalf of your business, the stakes are high and mistakes could involve many other parties and costs. According to the Google study, B2B buyers are nearly 50 per cent more apt to make a purchase where they can see a personal connection. They are also eight times more likely to pay a premium where they feel this personal value is present. This suggests that purchasers and suppliers need to ensure they are empathetic and customer-centric in their interactions.
What makes a great supplier relationship?
To sum up, Barclaycard research shows that looking after your supplier relationships depends on the following four things:
Lack of visibility and communication can lead to a loss of direct influence over suppliers further down the supply chain and can have a huge knock-on effect throughout the business. Whether it’s a tool like Precisionpay Hub or regular catch-ups via phone or email, keeping the lines of communication open can go a long way towards keeping supplier relationships strong.
Paying on time is critical – especially where dealing with smaller suppliers who may rely on regular individual payments to keep them afloat.
Trial and error
Different things work for different businesses. When you implement new processes, give everyone a chance to get on board and see how you get on. If something isn’t working, experiment until you get it right – the end result is too important.
A workman is only as good as his tools. Once a buyer has invited a supplier to join Precisionpay Hub, the supplier can request payment for goods and services directly through the platform. The payment request is then subject to an approval process – once approved it is scheduled for payment using a Precisionpay virtual card or bank transfer.