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Commanding supplier loyalty (1)

Have you ever wondered what will happen if suddenly a problem erupted with the supply of a major production input of your organization? For instance, for a bakery, if there is scarcity of flour; for a newspaper, if there is scarcity of news print; for a textile company, if there is scarcity of wool; for a glass manufacturing company, if there is scarcity of potassium carbonate (K₂CO₃); for a chocolate manufacturing company, if there is scarcity of cocoa; for an oil and gas exploration and producing company, if there is scarcity of production chemicals and for all organizations put together, if there is scarcity of diesel? For each of these business organisations, such unavailability of core production inputs will surely lead to production downtime and loss of valuable revenue. This reality underlines the importance of supplier loyalty to any customer.

In this piece, the ‘customer’ is any business organization that depends on other entities for the supply of its production inputs while the ‘supplier’ refers to other business organizations whose role is to procure and supply these materials to the customer. Sometimes, the supplier is a middleman such as the suppliers of chemicals required for oil exploration; and at other times, the supplier may be the manufacturer/producer such as producers of raw materials like cocoa, who may supply directly to the customer without the use of middlemen. Whichever is the case, the supplier has been proved to be very important in the value chain. The question therefore is, if a supplier is faced with a choice to make between customer A and customer B what will inform his decision? What consideration will drive him to either customer as his customer of choice? Furthermore, if there is a new product or technology known to the supplier, which customer will he choose to sell it to first? That is what we mean by supplier loyalty and every business organization is expected to put processes in place that will command its suppliers’ loyalty.

Collaboration between companies and their suppliers is very essential. A company is very fortunate if it has good, trustworthy and loyal suppliers. Consistent delivery of high-quality and reliable up-to-date products at reasonable prices consistently ensures smooth operations, productivity and success of the company’s products in the market. However, suppliers want their customers to treat them with respect (e.g. prompt response to their calls or emails, attending scheduled meetings on time, giving prompt feed backs, attending to their requests on time etc). Unfortunately, this is not the case in many organizations. In many industries, companies and their employees see suppliers as mere cost factors that they need to manage rather than as key partners that can make or mar the success of the business.

In early 2014, a major US auto manufacturer recalled 2.6 million small cars because of a defective ignition switch that could shut off the engine and airbags while the car was in motion. This was the big, controversial recall — the ignition-switch problem has been linked to at least 97 deaths. Investigations showed that though the company detected the poor quality of the ignition switch supplied, it continued using them because they were cheaper. In the long run, it paid heavily for it.

Companies that merely try to get cheaper deals from their suppliers cannot expect preferential treatment for product or process quality. Businesses that constantly change their suppliers to find the cheapest deals possible cannot expect their suppliers’ unwavering support in crisis situations. And companies that don’t have a close relationship with their suppliers will not be first in line to receive major innovations or important new products.

Recently, we carried out a supplier satisfaction survey in a company. We attempted to establish what the suppliers need to make a buying company customer of choice and many of their responses bordered on respect. They need more engagement by the customer as a means of showing that they are important to the company. A supplier will be loyal when the supplier gets information and cooperation from the buying company in the following ways:

Supplier engagements such as Suppliers’ Forum, where the company clearly explains the procurement processes and expectations in order to assist them during bidding exercises. Such a forum provides opportunities for the suppliers to understand the customer’s needs and expectations, voice out their frustrations in doing business with the customer and together both proffer solutions on how to move their businesses forward. Also, Senior Managements of companies can embark on strategic visits to their top Suppliers in order to cement their relationship as partners. Such visits are cherished because the suppliers are able to share their challenges and provide innovative ideas to them. The suppliers feel recognized as partners.

Furthermore, an organization can engage suppliers through supplier feedbacks on the performance of the company through survey and periodic contract performance review, which helps the suppliers to assess their own cumulative performance with a view to improving service delivery. All these go a long way in building a better buyer – supplier relationships. Communication with suppliers is of utmost importance. They are often keen for face-to-face communication and feedback from their customers. A customer who has an effective mechanism for communicating with suppliers will be regarded as the customer of choice. Facilities such as dedicated email account, dedicated hotline and dedicated days to have face to face supplier meetings go a long way in enhancing this relationship.

Through my career, I have been involved in organizing several supplier engagements. The enthusiasm shown by the suppliers for such engagements says a lot about the importance they placed on them. They are eager to be told what is new. In a nutshell, the suppliers consider such engagements as a sign of respect. When they see the management of the organization that gives them contracts addressing them periodically, it enhances their loyalty to the company.

…. To be continued

 

Gob-Agundu Uche

Gob – Agundu Uche is a Fellow and Chartered Member of the prestigious Chartered Institute of Procurement and Supply, CIPS. She is also a member of the Chartered Institute of Logistics and Transport, CILT UK.

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