Using technology to develop strategic supplier relationships

In our recent survey — “Procurement 2025: Is digital transformation driving more effective procurement?” — around two-thirds (64%) of respondents agreed that strategic supplier relationships will become increasingly important as companies look to achieve their future objectives — yet only half (52%) have formally selected their strategic suppliers.

This gap indicates that while there is consensus on the value of the strategic supplier relationship, many companies have yet to define what a strategic supplier truly looks like for their organization, much less how technology can help to develop these relationships.

Characterizations of a strategic partner

A strategic supplier is a third-party provider of goods or services with which a company has a mutually beneficial relationship that consistently delivers higher profitability and/or minimizes risk for both organizations.

Three-quarters (74%) of survey respondents believe that transparent commercial arrangements are a principal characterization of such relationships in the future. This is perhaps unsurprising coming from a group of procurement leaders since transparent commercial arrangements enable the buying organization to get the best deal by benchmarking cost elements with other parts of their supply chain.

Long-term commitments (69%), early engagement (65%) and demand visibility (57%) are the next most common characterizations. It is interesting to note that these three elements are in the gift of the company to give to the supplier, which suggests that to benefit from strategic relationships, buying companies recognize the need to give something away in return.

Long-term commitments allow both parties to invest time and money in optimizing the relationship without fear of that investment going to waste due to short-term changes in priorities. Early engagement enables suppliers to design and provide the best solution for the client’s problem in a way that minimizes cost-generating constraints. And with visibility over their clients’ upcoming demand, suppliers can organize themselves in the most effective way to service those needs. Technology can enable all three, but let’s first consider its importance in relation to the basic principle of information exchange.

Automating information exchange between company and supplier

Facilitating the information exchange between parties to allow more time to focus on future strategic opportunities and risks is one of the more obvious ways in which technology can enable strategic supplier relationships.

Indeed, 78% of our survey respondents agree that with the right information, suppliers can help their organizations become more successful. And half of our survey respondents (49%) cite information sharing as one of the three activities that takes up the most time with strategic suppliers. But acting on that shared information is what creates value, not the data-sharing itself.

Take something as simple as supplier performance data. Required data can reside in multiple systems in a company with varying degrees of quality levels, and the quality levels themselves can even be difficult to determine. But by properly understanding the requirements and conducting a gap analysis on data availability, a company can use technology, supported by the right processes, to automate the collection and cleansing of existing data and use it to draw additional data from new sources, for example, from suppliers themselves.

By visualizing this data through technology and placing it in the hands of supplier relationship managers, it frees them up to conduct more strategic supplier management activities.

Enabling strategic suppliers to better serve you

When it comes to how technology can help with early demand visibility, it is first necessary to understand how demand can be predicted.

Even where companies have seemingly less predictable demand, there will be underlying rules that govern how that demand is likely to fall and a confidence level can be derived. A data scientist can work with large volumes of historical data to build this logic.

If you’re in the construction sector, for example, spend is often based on projects and each project can be unique. By analyzing past projects and grouping them into different types, it is possible for the company to start creating templates for each project type. This logic can be coded in technology with the likely breakdown of material and labor demand requirements to be shared with suppliers. With a smoother and less manual information-sharing process between the company and suppliers, procurement is freed to act as an intelligent data function, working in the background to model the information and consistently improve the accuracy of predictions going forward.

People and technology

Ultimately, it is the quality of human interactions that determines the success of a strategic relationship between company and supplier. Those organizations that understand how they can best apply technology to their relationships in a way that maximizes that quality are likely to gain a competitive advantage and set themselves up for future success.

This article was originally published on SpendMatters