The hallmark of a strong supply chain is effective collaboration which can only be obtained for a healthy relationship with all key stakeholders. Suppliers provide critical input and raw materials for the survival of our supply chains lack of trust poses a grave risk.
The following are ways that lack of trust puts procurement & supplier relationships at risk:
- Late Payment Tactics – Honoring your payment terms goes a long way with your suppliers in earning their trust and respect. The key is to understand that your suppliers have fiscal obligations as well and delaying your payments can hurt them financially.
- No concern for the interest of your suppliers – Interest in supply chain dynamics should be approached from a mutual and collaborative standpoint. Suppliers do have interests that are critical to their survival and profitability. Some of these interests are to gain market share, increase profitability, acquire new business, and enhance brand equity to name a few. Failure to understand and integrate these interests with the interests of your own organization is a grave mistake and disruptive to the relationships with your suppliers. Exploring platforms of integrated interests, mutual profitability, and synergies can yield greater profitability and sustained synergies.
- Exaggerating spend projections – This tactic is used to leverage volume for lower pricing. This creates havoc in supply chains. I have witnessed where suppliers have overproduced and stored huge amounts of raw materials because of the use of this tactic. This activity puts the manufacturer in a precarious situation and exposed to inventory buildup, high carrying cost, negative cash flow, and erosion of profitability. This is one of the seeds of mistrust in procurement and supplier relationships. The goal here is to be visible and truthful with your projections. If lower pricing is important there are other creative ways to collaborate with your suppliers to reduce costs in your value streams.