What Is a Supplier in a Business?
A supplier is a person or business that provides a product or service to another entity. The role of a supplier in a business is to provide high-quality products from a manufacturer at a good price to a distributor or retailer for resale. A supplier in a business is someone who acts as an intermediary between the manufacturer and retailer, ensuring that communication is forthcoming and stock is of sufficient quality.
The Importance of a Supplier in the Product Lifecycle
Suppliers have a hugely important role at every stage of the product lifecycle. From sourcing raw materials to helping ramp up production, and to finding better options for raw materials as the market starts becoming saturated, companies need to work closely with their suppliers to get the best out of their products.
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Examples of the Role of a Supplier
The role of a supplier in a business can be a demanding one as retailers expect a certain level of quality, and manufacturers expect suppliers to sell a lot of stock. Due to this suppliers must be flexible and understand how to manage relationships. Other important elements of a supplier’s role include:
- Compliance with local laws: Suppliers should comply with all relevant laws and standards, including human rights protection and child labor.
- Equitable transactions from all retailers: Suppliers must provide equal opportunities for all retailers to do business with them. A retailer should not be rejected due to their location, or any other reason.
- Best price possible: Suppliers must guarantee the best price and quality to retailers to maintain trust among them. This will help ensure repeat business in the future.
- No conflict of interest for suppliers: Suppliers should not do business with those who they may have a conflict of interest with. This would include family members, friends, and new or old colleagues. This is to decrease the likelihood of unfair treatment among other customers.
What Is Supplier Relationship Management?
Supplier Relationship Management is the process of planning and managing all relationship with vendors that supply any products or services to a business. This may involve raw material suppliers, utility suppliers or cleaning services suppliers. It is important to manage these relationships so a business can ensure the efficient supply of products and services for the company.
Creating and maintaining a Supplier Management Process that explicitly outlines the route to take to manage a supplier is important so that a company can choose the right suppliers that suit the business needs. The Supplier Management Process goes further than just choosing the right vendor, it outlines the process of building trust with suppliers and improving on the services provided by them.
What Are the Benefits of Supplier Relationship Management?
Managing relationships is a huge part of any department but it is more so for suppliers as these are entities who are not internal to the company. Suppliers exist outside of the business meaning that the company needs to be careful with the information that it provides to the supplier. The business must strike the right balance as the supplier needs to feel like the business values them before they will provide excellent service seamlessly and go above and beyond the normal activities to impress the business.
- Reduced Costs: Managing supplier relationships means that suppliers stay with the company for a long time and churn is kept to a minimum. Working with one or two suppliers who can provide many different materials is better than having many different suppliers. This means a company can work on improving the supplier services and reducing costs.
- Foster Innovation: When a business works closely with a supplier they can work together to lead innovation. Through this, both parties can improve their offering exponentially.
- Collaboration: As companies build strong relationships with their suppliers, feedback and open communication become easier. Collaboration becomes seamless in this way and the company can give observations to their suppliers about how to improve service to them and vice versa.
- Process Improvements: As feedback becomes commonplace the business and suppliers start to understand the inner working of their relationship. The supplier will start to understand what products the business might be interested in, and the business will know the right time to order from their supplier so they receive the order on time.
Supplier Relationship Management Best Practices
- Build Lasting Relationships: If a company intends to use a vendor more than once it should strive to build a lasting relationship whereby they can pick up the phone and talk to their supplier easily. This relationship will ensure that they will understand the full capabilities of their suppliers so the business knows when they are asking too much from their suppliers. Building a strong relationship will ensure that their suppliers will look after the business's needs in the future before others.
- Invest in Technology: With software for everything today it is easy to find the right supplier management software for a company that is tailored to their explicit needs. With this technology, companies can track suppliers, create a dashboard to have a snapshot of how everything is doing, and quickly discover pain points through simple to read data.
- Pay Suppliers On-Time: This seems like a no-brainer but paying suppliers on-time is a great way to maintain a good supplier relationship. Some companies poorly track deliveries and orders meaning that payments may be late. This leaves the supplier in a bad spot as their cash flow is not secure and they may not trust this existing customer as much as a new customer they acquire. Using tracking software and a good supplier management process, a company can ensure that payments are made on-time and suppliers remain happy.
- Streamline Supplier Agreements: Streamlined Supplier Agreements (SSA) mean that all suppliers receive the same treatment regardless of what service they provide. When onboarding new suppliers the process is a lot quicker as the agreement will be the same for all suppliers. Minor edits can be made of course but these can be signed off in a fraction of the time it takes to get sign off on a 10+ page document. This makes it easier to manage relationships as everyone in the department will know what the agreement looks like.
- Evaluate Risk: Companies should research suppliers before they do business with them to make sure they are financially stable. Businesses should always seek supplier references to inquire about particular concerns the business may have. Asking references how the supplier deals with increased capacity, are they consistent with delivery times and quality, is the supplier forthcoming with important information, the level of aftersales service, etc. is hugely important for risk management. Evaluating risk before onboarding a supplier can mitigate uncertainties later.
What Is the Difference Between a Supplier vs Distributor?
As highlighted above a supplier supplies a product or service to another entity, usually a distributor who will sell it to a wholesaler or retailer. Suppliers can also be the manufacturer of the product and the distributor of the product. More often they cannot take on the additional workload of distribution so they outsource this activity to another company. A distributor, on the other hand, sources products from suppliers and sells them to a wholesaler or retailer at a slightly higher price to make a bit of profit for themselves. The main difference between these two groups is that one works more closely with the manufacturer (the supplier), and the other works closely with the retailer (the distributor).