Relationship-Based Supply Chain Management
The electronics industry relies heavily on supplier relationships to continue producing the products we all enjoy. The supplier relationships developed between companies span across components, services, production, and raw materials. Many companies prefer to maintain these relationships over time and leverage them as part of their competitive advantage. This form of supply chain management, where vendor relationships are paramount to competitiveness, is sometimes called relationship-based supply chain management (RSCM).
This line of thought emphasizes the importance of building and maintaining strong relationships with all stakeholders in the supply chain. This approach recognizes that the success of a supply chain is not just about optimizing individual processes or transactions. It is also about fostering collaboration, trust, and mutual benefit among all participants.
How Supplier Relationships Form
All supplier relationships for organically over time, rather than through a concerted effort to locate and engage a supplier in a long-term business relationship. The initial selection and qualification of a new supplier can be influenced by many factors, such as available inventory and the strategic significance of the components being provided.
Companies don’t always seek out vendors in an attempt to create a long-term vendor relationship. Typically the vendor proves their company’s value and capabilities over time after the buyer engages based on a need for a specific product or service. After a vendor continuously proves their worth to a buyer, it becomes much easier to continuously engage them in new business and leverage their capabilities to remain competitive.
Companies that want to position themselves as long-term vendors can take several steps to prove their value and capabilities:
- Responsiveness to vendor requests for quote, purchase orders, and order modifications
- Extension and receipt of credit relationships with a buyer/vendor
- Continuous improvement based specifically on vendor/buyer feedback
- Preferred pricing or commission arrangements
- Prioritization of order status and order transparency
- More direct communication between the buyer and vendor POCs
Just like any relationship, the relationship between supply chain partners should be nurtured and improved upon over time. Instead of focusing on short-term gains, companies should focus on building their preferred vendor relationships, especially in areas where a competitive advantage can be gained. Buyers will often integrate preferred suppliers into their operational framework, and the payoff for vendors can be significant as it leads to a longer relationship with significant ROI.
Leverage Your Supplier Relationships
Once long-term supplier relationships have begun to form, how can companies leverage those available capabilities to increase their competitiveness? There is a fine line involved in prioritizing one supplier as part of core operations without creating a new source of risk through under-diversification.
Some of the most common ways to leverage long-term supplier relationships include:
New capabilities: Building a long-term relationship with a vendor allows a buyer to market the vendor’s capabilities as their own. Pricing can then be based on a pay-per-service model with a markup, or the buyer can earn a commission on sales funneled to the vendor. Both the vendor and buyer benefit as their reach is expanded into a new customer base. Typically the buyer and vendor can collaborate on messaging and closing leads to generate new revenue.
Emergency capabilities: Another instance where new suppliers can be leveraged to expand capabilities is in times of emergency, where internal bandwidth or inventory isn’t available. For EMS companies, small design firms, distributors, assemblers, etc. this could mean working with a preferred broker when semiconductor vendors and big distributors can’t supply needed parts. As an OEM looking for design services, you might outsource your overflow design tasks to an outside firm to help meet deadlines.
Second source: The diversification of sources for products and services is the new strategy companies have developed to ensure sustainability. For example, rather than work with a single parts distributor, EMS companies and OEMs are increasingly turning to 3PL companies who can qualify brokers and resellers. For design services, it’s common for engineering firms and OEMs to keep a roster of contract engineering firms readily available to ensure they can always access additional design capacity when necessary.
Summary
Long-term supplier relationships in the electronics industry can be very important to competitiveness and access to new capabilities if they are leveraged correctly. The most reliable vendors for your business will emerge over time and the relationships grow organically, eventually creating a reliable product and/or service stream. Fostering long-term buyer-vendor relationships is a two-way street; either both sides are committed or the relationship goes stagnant.
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