Consider the three areas where retailers most fiercely
compete: pricing, quality, and availability of supplies to match demand. The
ties a company develops with suppliers typically determines how well it can
compete on those fronts.
Partnerships with suppliers need to be fostered, just like
any other kind of relationship. The partnership must be advantageous to both
your store and your suppliers. If you get along with someone, you can get
special attention, lower prices, and more stability.
Not sure where to begin? How to improve your connections
with your suppliers is covered in this guide.
Supplier relationship management
(SRM) – what is it?
The method a retail store manages its ties with wholesalers,
manufacturers, and distributors is known as supplier relationship management.
Strong supplier connections have an impact on the whole
procurement process. It will improve the level of service you receive, lower your
costs, and strengthen your supply chain—minimizing demand disruption that would
prevent customers from purchasing goods from your store.
The objectives of supplier relationship management
There are three basic purposes of supplier relationship
management:
·
Risk Management,
·
Simplifying Supply,
·
Maximizing Value.
Supplier risk management
One of the major threats posed to merchants is stock outs.
It happens when suppliers can’t match client demand, often pushing consumers to
acquire products from another merchant. The problem costs US retailers $82
billion in missed sales each year, or nearly $1.56 billion a week.
Improving your relationship with retail suppliers helps
streamline the supply process. It decreases the number of difficult
interactions you’ll have telling them a product they love is out of stock.
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Streamline the supply process
Suppliers are professionals in production and
transportation. Lean on their insights to optimize the supply process, decrease
waste, and save money.
Let’s imagine you’re dependent on suppliers to offer
supplies for your popup food truck. Your supplier has a minimum order quantity
(MOQ) of 50 units, but you don’t have enough capacity inside the truck for that
many things.
Strong relationships with the supplier could make them more
lenient. There’s a potential they can drop your MOQ to 40, and thereby prevent
waste from inventory that can’t be sold owing to inadequate food storage
conditions.
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Maximize supplier value
Aside from delivering inventory, a solid supply base
enhances the value you obtain from each partner.
For example, shops with fast-moving merchandise could demand
speedier response times from suppliers. Those they’ve already formed good
relationships with might be more responsive, or perhaps supply a direct phone
number for their point of contact.
Supplier relationship management
challenges
Supplier relationship management is crucial, but it is by no
means straightforward. Let’s analyze some of the common issues related with
SRM.
Lack of visibility
Suppliers aren’t part of your retail firm, yet they’re one
of the most crucial assets. That said, lack of insight into your suppliers—such
as their commitments to other merchants and their capacity—can be a challenge.
“Trust is crucial in any partnership, but it may be tricky
to create trust with a supplier,” explains Helen Armstrong, founder of APSLEY
Australia. “Just like any relationship, supplier partnerships need to be
nurtured through timely communication. This cannot be easy to do when managing several
suppliers and trying to run a business simultaneously.”
Similarly, most retailers don’t give suppliers visibility
into their own inventory. Demanding a short turnaround time for a product
that’s low in stock is a formula for confrontation.
Focusing too much on cost
Granted, it’s crucial to source things that you can offer at
a greater price in your retail business. But suppliers operate businesses, too.
Bartering on pricing might put pressure on the relationship.
If your supplier sells high-quality products, consider being
more liberal on price.
Unclear KPIs
Supplier partnerships often go poorly when the parties have
differing expectations. This is largely owing to ambiguous key performance
indicators (KPIs) and metrics. For example, if you anticipate things to be
shipped within three business days after making an order, but your supplier
thinks five days is usual, it’ll produce friction.
Benefits of a supplier relationship
management program
A supplier relationship management program can positively
influence your organization in several ways. The key benefits of an SRM program
include: decreased costs, a stronger supply chain, and improved innovation.
Reduced expenses
The less you spend on inventory, the bigger your profit
margins. Building a strategic supplier connection typically offers you access
to unique pricing.
Take it from Yedra Lopez Gragera, business operations at
OpenStore, who says: “We’re continuously asking suppliers about what they’re
working on next and the new goods we might be able to offer our brand.
“Sometimes we can also unearth an excess which allows us to
buy products at a cheaper cost or production runs with decreased lead time.”
Inflation is also increasing the cost of raw materials, and
many suppliers are hiking their prices as a result. Those you have ties with,
however, are more likely to stick with their previously-agreed-upon costs. Good
partnerships will limit price swings that harm profitability.
Bolster supply chain
The Ukraine-Russia conflict has had a major impact on air
freight, ports, and shipping. Meanwhile, supply chain management specialists
are still reeling from the COVID-19 pandemic. This is why 39% of brands we
surveyed said shipping/manufacturing disruptions and shipping prices will be
the greatest supply chain difficulties they’ll encounter in the next 12 months.
Suppliers typically prioritize orders from the merchants
with whom they have the greatest relationships. Should they overcommit and not
have enough product to meet client requests, suppliers might prefer your demand
over other, less liked sellers. This continual supply of new products could be
a competitive advantage.
Increased innovation
Suppliers and manufacturers need to be innovative to stay
competitive. So do retailers. As part of your SRM program, evaluate whether you
can depend on your suppliers’ innovation to speed up that of your own sbusinesses
For example, let’s put it into practice and assume a
candle-making supplier mentions a new product variety with sustainably-sourced materials.
Ask whether you’re able to sample the new product, and if so, mark it up—50% of
consumers are ready to pay a premium for sustainability.
·
Supplier relationship management process
·
Segment suppliers
·
Collaborate with suppliers
·
Build a supplier strategy
·
Track results
Let’s walk through each of these steps individually.
1. Market vendors
Suppliers differ greatly from one another. The following are
some examples of strategic suppliers who have a bigger impact on your retail
business than others:
·
Top-selling goods
·
Inventory with the best quality and lowest price
2. Cooperate with vendors
Prioritize your relationship-building once you\’ve identified
strategic suppliers so you can get the most out of them.
Keep in mind that developing relationships is a two-way
street and that cooperation is the key to an effective SRM program. Work
together with your most crucial partners to produce, buy, and ship inventory in
a way that benefits both parties.
3. Create a supplier plan
How are you going to collaborate with your suppliers? How
frequently will you be in contact with them? What performance metrics will you
track? At the start of a new SRM strategy, go over those points with each
strategic supplier.
4. Monitor outcomes
Are the objectives you set forth at the beginning of your
partnership with your supplier being met? Keep an eye on supplier performance
to make sure they\’re fulfilling your expectations for quality, service, and
delivery.
The same holds true for your retail business. Check to see
if you\’ve provided adequate lead time, are fulfilling MOQs, and have complied
with a supplier\’s payment requirements. The secret to reducing supply
interruptions is to keep suppliers satisfied.
·
Set definite goals.
We previously said that when both parties are unsure of what
is expected of them, supplier relationships can become strained. Before working
with any provider, communicate your business goals to prevent
misunderstandings.
Set concrete goals with your supplier base in advance that
specify how many units you need and by when, for instance, if you\’re getting
ready for a huge Black Friday sale. If you\’re both striving for the same thing,
it will reduce tension.
Similar to that, let your supplier know if your retail store
is prioritizing cost cuts following a slow quarter. If the relationship is
solid, they might be able to give solutions, such as a discount or a reduction
in MOQs, and they will enjoy being informed if demand is changing.