3 Benefits of Strong Supplier Relationships

Shifra Kolsky, CPA SVP, Chief Accounting Officer, Discover Financial Services
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My colleague, Todd Podell, senior vice president and chief procurement and corporate services officer at Discover Financial Services, says companies often have robust supplier bases that can be tapped for knowledge, expertise, and steering their businesses toward healthier bottom lines.

To learn more, I sat down with Podell to hear his thoughts on effective supplier relationship management and how corporate leaders can make the most out of these relationships. He says there are three key benefits to maintaining strong working relationships with suppliers.

1. REACHING PRODUCTIVITY GOALS

Suppliers can help companies reach their productivity goals and objectives. Of course, a well-planned focus on productivity requires an investment in some expertise and rigor to look at specific cost areas. Therefore, companies may implement short-term planning measures to reduce costs, especially during a crisis. These measures may include slowing down hiring processes, managing quantities of technology licenses, or scaling back travel—all of which require decisions about risk tolerance levels and trade-offs of implementing a cost-saving measure. This is especially true in areas such as real estate, marketing, and technology implementations, which often require projects spanning 18 to 36 months where it may be counterproductive to implement these short-term measures.

For long-term planning, Podell says to make sure there’s a competitive landscape for bidding when contracts expire. For example, owning your intellectual property, understanding the qualifications of the available suppliers, and staying ahead of understanding future needs all factor in to shaping the demand management of specifications.

Additionally, a strong sourcing team will leverage their internal finance team to help identify opportunities through advanced cost reduction analytics. Remember, finance teams have the ability and knowledge to determine what goods or services should cost. They’ll have insightful cost analysis based on a deep understanding of suppliers’ cost base, levers of investment, margins, and goals. Having this knowledge will help a strategic sourcing team negotiate cost vs. price. For example, in the labor category, the sourcing team will understand the level of the people doing the work and the tasks they’ll be performing. They’ll also understand the quantity of tasks and the rate that people are being paid relative to the amount the customer is asked to pay for the services. This knowledge, combined with strong supplier relationships, allowed Podell’s team to effectively negotiate with their suppliers during the COVID-19 pandemic—they were able to agree on pricing that reflected more even loss sharing than might otherwise have been achieved.

2. FOSTERING INNOVATION

Podell notes that while cost is important, it shouldn’t be the only focus. An important step in creating strong supplier relationships is recognizing the potential to grow sales and innovation that exists within your supplier base. For example, suppliers can help companies be innovative and cost effective in their core business functions and opportunities.

Notably, Podell’s team had a supplier who helped them reduce their production costs for a 30-second commercial spot by crowdsourcing the material. Multiple small shops were able to submit their own original ideas to Podell’s team that met their ad criteria, which resulted in highly creative spots that were on point and cost a fraction of a highly produced one.

Additionally, a strategic sourcing team can look for innovation in the marketplace and find technologies that support cost management objectives. In almost every category there are analytical tools that can help. For example, technology that aids with tracing digital ad placements, construction and space planning, or software license counts can all lead to smarter deals.

Podell has seen this in action working with a supplier that was a startup software company. Using their software, the supplier helped Podell’s team trace dollars spent on digital ad placements by providing information on the ads’ exact media placements, the times they aired, and the audiences they reached. This information allowed for better analysis of whether the money spent on advertising had the intended outcomes in terms of audience and relevance. Through this information, Podell’s team was able to make better informed decisions about the allocation of the marketing dollars, whether that resulted in cost savings or simply more targeted advertising.

3. ENABLING GROWTH

Supplier relationships can also have a significant impact on company growth—whether because of perfecting core goods and services or expanding the company’s expertise. Podell shared two examples where he’s seen impressive partnerships with suppliers that resulted in sales growth for the company:

• A health care company had a product that was not only medically sound but also market leading in terms of the problem it could solve for patients. However, the product wasn’t gaining usage and adoption the way the company anticipated. The team pulled together a supply chain workshop for the people responsible for manufacturing the components of the product, along with doctors, sellers, and customers. By working together with folks up and down the supply chain, the company was able to learn what wasn’t working and what would fix it. They retooled the product to design it better, which ultimately increased sales.
• A technology company that was essentially competing with a “Goliath” to their “David-like” size, partnered with their suppliers to create a joint venture that went on to tap into the expertise of that supplier and several of their other customers. Through this joint venture, innovations and developments were achieved that none of the partners could’ve done alone. This led the smaller technology company to a market share increase of seven times what they had prior to the joint venture.

In many companies, supplier spending is collectively the single largest block of expenses. It encompasses all the products and services that a company buys from third parties, covering everything from manufacturing materials, equipment, and logistics, to marketing, consulting, technology, employee travel, insurance, outside counsel, office supplies, real estate, and so much more. Top procurement and sourcing teams usually return more than $5 in savings for every $1 invested in procurement overhead. Thus, it’s a wise investment to have a strong procurement organization that can leverage the company’s scale to maximize the value of enterprise-wide supplier spending.

As you can see, maintaining strong working relationships with your suppliers is crucial to your business practices. By working together with your suppliers, you can streamline processes, reduce costs, and create a healthier bottom line. As Podell says, “The power of accessing the people and expertise across your suppliers can lead to breakthroughs that you may not get to alone.”

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