Effective Supply Chains Start with Great Suppliers

Procurement functions at companies today are becoming more strategically tuned in and essential all the time. Rather than stepping in at the last minute and managing rather straightforward contracts, these departments are taking an active role in keeping their parent organizations strong and efficient. That may mean performing careful research to set up productive relationships with the top available suppliers.

A supply chain that is a productive and optimized part of its company can't afford weak links. This means that procurement departments must set to work ensuring that the partner organizations they work with are strong and effective in their particular fields, and that their communications and exchanges with these businesses are effective.

Ideal raw materials sources
Manufacturing Business Technology contributor Doug Farren, managing director of the National Center for the Middle Market, recently discussed the results of his organization's supply chain survey. The research focused on the mid-sized companies that provide the raw goods and services used by other organizations. He singled out a few characteristics that make firms particularly effective at dealing with requests and being consistently efficient and effective.

For example, these organizations tend to strike up a few strong relationships, rather than supplying a wide variety of customers. This goes both ways: Not only do these suppliers only work with a limited group of up-chain companies, but those firms also typically rely on very few suppliers for particular materials. These strong bonds lead to mutual support between suppliers and their partners.
Farren added that suppliers that are effective within their markets also tend to focus in on a few capabilities. When they need help storing or transporting goods that go beyond their capacity to move, they work with third-party logistics providers to get the job done instead of stretching their in-house functionality.

Such insights about the best practices of suppliers are valuable because, as Farren noted, it can be hard to find out about the processes of these relatively small and privately held companies. The more organizations dig into the data around supply chain excellence, the better they'll be at selecting partners that can carry their organizations.

Deals based on trust are better than ones forged on ultimatums.

Shoring up supplier relationships
Good links between companies and their suppliers are essential today, according to a Supply Chain Quarterly excerpt from the recently published industry book "Fundamentals of Supply Chain Management." Give-and-take between these parties, as well as fruitful communication are needed just to hold the partnership together. When companies share their technology and techniques, the benefits are mutual. The alternative - a combative style in which a merchant threatens to pull its business - is likely more trouble than it's worth. The supply chain partners need one another and are better as allies.

Strategic plans shouldn't stay hidden. Companies that know their overall direction should make sure their suppliers are aware of these plans rather than flying blind. Furthermore, when demand events crop up, lines of communication should be open. This openness has benefits for parties across all levels of the supply chain, according to the source. Finding a few ideal suppliers and strengthening ties with them allows strategic sourcing to spread its influence beyond one company's walls.