In this blog post, we’ll explore the 5 types of supplier relationships. Each can help address specific operational needs and create competitive advantages for organizations. Of course, no matter what types of supplier relationships you establish in any given situation, having a solid relationship with your suppliers — and then solid supplier relationship management to maintain them — is critical for success.
These are just some of the types of buyer-supplier relationships you can establish with your suppliers – there are many other examples of buyer supplier relationships.
The 5 Types of Supplier Relationships
- Arms-length
- Partnership
- Just in Time (JIT)
- Strategic alliance
- Outsourcing/Subcontracting
Arms-length
An arm’s length buyer-supplier relationship is strictly transactional. It involves selecting a supplier and ordering from them to fill an immediate need, with no guarantee that the relationship will remain active for future orders. There is minimal information shared between the business and the supplier. These types of buyer-supplier relationships may be online-only, which can be efficient and cost-effective (think Grainger or Amazon). Of course the same supplier is almost certainly providing parts to competitors, and there is no special competitive advantage available from working with them.
Partnership
Partnerships introduce a high level of trust between two parties, as the supplier is primarily concerned with meeting the requirements of a specific entity and can only do limited business with the competition. This allows suppliers to pool more resources towards serving the specific needs of their customer. Partnerships often involve long-term contracts, and the business will typically share detailed information so that their supplier can deliver to their exact requirements.
Just in Time (JIT)
Just in time (JIT) is a supply chain management technique that requires suppliers to deliver goods and services to an organization’s customer at the right time, preventing them from accumulating excess inventory or running out of stock too early. This helps streamline operations by avoiding unnecessary storage costs and shortages, leading to improved customer satisfaction. Just in time buyer supplier relationships are a special kind of partnership, with a high degree of operational integration.
Strategic Alliances
Strategic alliances are long-term partnerships between two or more organizations working together to achieve mutual benefits. These alliances may involve collaboration on new products, sharing resources, pooling research & development efforts, and engaging in joint marketing campaigns. By forming strategic alliances with several different suppliers, organizations can leverage the strengths of each partner while minimizing their costs – creating a win-win situation for all involved parties.
Buyer-Supplier Network
Buyer-supplier networks are collaborative environments created by networks of customers and suppliers working together to develop innovative solutions to problems that are shared across companies in the network. They allow companies to share information about customer preferences, technologies under development and best practices – ultimately reducing costs and improving efficiency for all involved parties.
Outsourcing
Outsourcing is the practice of contracting work out to external partners instead of carrying it out within the organization itself. Outsourcing can be used in many different ways including manufacturing overseas (offshoring), hiring freelancers online (crowdsourcing), or subcontracting parts of the process such as IT support or accounting services locally (nearshoring). This allows businesses to access talent they don’t have internally while staying agile and nimble so they can adapt quickly when needs change – creating an advantage over competitors who may not have access to these resources themselves.
Other Types of Supplier Relationships
There are many other types of buyer-supplier relationships that may be beneficial to your business, such as long-term contracts with commodity/transactional suppliers, or exclusive deals that give you a competitive advantage. It is important to analyze your needs and research potential suppliers before deciding on the types of supplier relationships that would work best for you.
How to Improve All Types of Supplier Relationships
Building strong buyer supplier relationships doesn’t happen overnight – it takes effort and commitment from both sides! Here are some tips on how you can start developing great supplier relationships:
- Establish clear communication channels: Make sure there is frequent communication between you and your supplier so that issues can be addressed quickly when they arise.
- Develop trust: Trust is key for successful relationships; build it through open dialogue around expectations, objectives and goals so that both sides know what is expected from them.
- Reward performance: When your suppliers show sustained excellence in delivery against agreed metrics reward their performance accordingly; this will encourage future performance above expectations as well as foster loyalty between participants as part of a longer term team effort/collaboration!
Leveraging the right kind of supplier relationship for each specific situation can bring many benefits. From cost savings to better customer satisfaction, successful supplier relationships can help you take your business to the next level.
If you want to learn more about achieving your business goals with SRM, check out 7 Key Elements for Supplier Relationship Management Success.
And if you want to learn more about how Vendorful can help you along the way, speak to one of our specialists.