September 18, 2023
Vendor Relationships: Key Steps To Build A Strategic Asset
Sign up for our newsletter
Stay informed with the latest trends and best practices in finance and procurement.
There are some assets that don’t appear on the balance sheet, yet they can be worth more to a business than anything else that appears in its financial statements. One of these assets is a strong relationship with a vendor.
For finance and procurement professionals, this relationship can be the secret weapon that keeps them ahead of competitors, or the safety net that’s in place from a risk-mitigation perspective when times are tough.
In all cases, there’s no question that a strong relationship with vendors is a strategic asset from a procurement perspective. Read on for finding this value in your vendor relationships, as well as tips to create and nurture these connections.
The value in vendor relationships
Some of the benefits of strong vendor relationships are obvious – and some less so. Here are just some of the advantages of strong vendor relationships:
Consistency and Reliability: Establishing strong vendor relationships ensures a consistent and reliable supply of goods or services. This can build brand value, keep customers happy, and make forecasting significantly easier.
This is most visible in preferred vendor relationships. Preferred vendors are the cornerstone of successful procurement strategies, and nurturing strong vendor relationships is essential to establishing and maintaining such preferences.
Procurement professionals who prioritize these relationships often benefit from priority service, access to exclusive discounts, and customized solutions tailored to their organization's unique needs. By investing in these bonds and demonstrating loyalty, procurement specialists not only secure dependable suppliers but also position themselves for long-term cost savings and operational efficiency.
Cost Savings: Of course one of the major benefits of long-term vendor relationships is cost savings. Vendors are more willing to negotiate favorable terms, provide value-added services to trusted partners, or offer discounts.
These discounts, which may be volume-based, early payment incentives, or special promotions, can significantly impact an organization's bottom line. Strong vendor relationships enable not only the identification of cost-saving opportunities but also the willingness of suppliers to extend these benefits, making them a strategic asset in optimizing procurement strategies and achieving financial goals.
Quality Assurance: Where a long-standing relationship is in evidence, there is more incentive to keep quality consistently high.
Innovation and Collaboration: Strong relationships encourage collaboration and innovation, not least because the vendor understands the particular opportunities and challenges faced by the buyer, and can therefore be more creative in meeting these needs.
Supply Chain Resilience: In times of crisis or unforeseen disruptions, having established vendor relationships can be a lifeline. Recently, for example, Volkswagen has discussed restructuring the way it purchases semiconductors, with a focus on transparency and long-term relationships – this after the shocks caused by the COVID-19 pandemic and the subsequent supply chain crisis.
Customization and Flexibility: Vendors who know your organization well can provide customized solutions and adapt to your changing needs quicker and more effectively.
Risk Mitigation: A strong vendor relationship can help mitigate risks associated with geopolitical, economic, or market fluctuations. Vendors who are committed to your success are more likely to work together to navigate challenging situations.
Streamlined Procurement Processes: Familiarity between procurement professionals and vendors leads to smoother, more efficient procurement processes, which in turn have numerous positive knock-on effects.
In summary, especially when it comes to more competitive markets, a strong vendor relationship can be a key differentiator to get you ahead of your rivals.
Next we’ll look at tried-and-tested strategies to build strong, sustainable relationships with vendors.
Building a lasting vendor relationship
Like any relationship, a strategic vendor relationship takes time, effort and commitment from both sides to be successful. Here are some tips and strategies to build such a relationship.
- Cultivate Personal Relationships: Building personal rapport with your vendor contacts can go a long way. At the end of the day, we’re all people, and there are few more powerful things than a human relationship, a face behind a name, and sharing your unique personality with those you do business with. Remembering a child’s name, or a home town, can make all the difference.
- Communication is Key: Open and transparent communication is the foundation of any strong relationship, and this is no different with vendors.
- Negotiate Fairly: When negotiating contracts and agreements, strive for fairness. Avoid pushing for excessively favorable terms, as this can strain the relationship. It might bring short-term gains, but could negatively affect the relationship in the long run.
- Trust and Reliability: Trust is the bedrock of any strong vendor relationship.Trust is built by consistently meeting your obligations, paying invoices promptly, and honoring your commitments.
- Provide Feedback Constructively: When issues arise, address them constructively and respectfully. Following from this is collaborative problem solving.
- Collaborative Problem-Solving: When faced with challenges, collaborate with your vendors to find solutions. A problem shared is a problem halved, and joint efforts can lead to innovative solutions.
- Stay Informed: Keep yourself updated about market trends, your vendors' businesses, and industry developments.
- Recognize Loyalty: Acknowledge and reward vendor loyalty. Whether through exclusive contracts, extended partnerships, or other incentives, show that you value their commitment.
Vendor relationships are strongest when they are forged in challenge. When things are going well for both the vendor and the buyer, this relationship isn’t necessarily tested – but when one or both of the parties is going through a crisis, and the other proves that they’re there for them and believe in the relationship, this forms a bond that can be almost unbreakable.
For example, a California-based boutique clothing retailer was gearing up for the busy Christmas season, however it had run into cash flow problems. Its supplier in China, based on a long relationship with the owners of the brand, shipped the Christmas supply in spite of these challenges. The results were win-win for all sides; the retailer had its best quarter ever, and the supplier was paid early, with interest. This trust and mutual appreciation has been instrumental in the success of both businesses for decades.
The ultimate platform for nurturing vendor relationships
When it comes to vendor relationships, communication, speed, and transparency are critical. Having the right procurement platform in place is the foundation upon which strong vendor relationships are built.
PayEm’s user-friendly, unified platform makes procurement simple and manageable for growing businesses. The visibility and control that the platform provides means that you can become the vital partner vendors rely on – and vice versa.
PayEm is procure-to-pay (P2P) on a whole new level, empowering you to manage every aspect of the procurement process in one powerful platform.
To learn more, get in touch with a PayEm product expert now.
Conclusion: vendor relationships and adding value to your organization
As we’ve seen, lasting vendor relationships can add tremendous value to a company. They can save the day in times of crisis, and offer a unique differentiating factor when it comes to outsmarting your competitors.
We looked at the various types of value such relationships can offer, as well as practical steps to start building and maintaining these key relationships.
To learn more, and find out how the PayEm procurement platform facilitates these massively value-adding activities, book a demo today.
