Prime Advantage Blog

Establishing Supplier Relationships: Can They Meet Future Demand?

Dan Grant on May 28, 2015 7:48:00 AM

Few matters affect growth potential more directly than a company's ability to meet customer demand. We've all heard stories about companies that grew too fast, and while that sounds like a nice problem to have, there are a couple of key factors to consider. Capacity is one of them. You must ensure you have the correct amount of assets in place, and for a manufacturer that can be capital equipment, production space, human capital, and liquidity. The other essential factor that must be addressed is the supply chain.

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A supply chain that works magnificently at current business levels may begin to fail if growing demand exceeds your suppliers' potential. With this in mind, and hope for growth always on the horizon, businesses must take inventory of their relationships with their suppliers -- how they interact with them individually and as groups, and what they might gain from those different relationships in terms of reliability, expandability, and adaptability.

Managing Your Supply Chain on Your Own

When building and cultivating a supply base on your own, the responsibility of suppliers' quality, their prospects for growth, as well as the numerous other factors that determine the potential of your partnership falls squarely upon your shoulders. You must be able to identify true capacity levels, flaws in manufacturing quality, and other shortfalls of your suppliers on your own. You'll also be solely dependent upon your own volume to establish deals and set prices. Everybody wants new business, but few partnerships are a perfect fit. These tribulations are precisely where buying groups can help.

Leveraging a Buying Group

Joining a buying group simplifies many aspects of new supplier relationships. By working with an audited and consolidated supply group, questions such as reliability, adaptability, and expandability are already addressed. There are often times multiple suppliers are in a given category, which gives companies a reliable secondary source. This feature, along with group volume aggregation, provides significant leverage at the negotiation table. Suppliers have a vested interest in the group, which fosters an environment where quality and service are proven and audited, diminishing these points of concern for the customers.

What to Consider

  • How much time can you spend investigating your potential suppliers' quality, speed, etc.?
  • What limitations do your current suppliers have? What circumstances might cause them to be inefficient or inadequate?
  • How will your costs shift if you work with a purchasing group? Consider indirect costs carefully, not just direct differences in expenditure.

Final Thoughts

Working with a purchasing group can bring a myriad of benefits to your organization. Partnering with the right vendors is vital to reaching your company's growth potential. Ensuring you have the correct platform to locate and evaluate those partners -- like the one a buying group provides -- can prepare you before demand strikes.

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Topics: Supply Chain

Dan Grant

Posted by Dan Grant

Daniel Grant is the President of Prime Advantage, a Chicago-based Group Purchasing Organization for mid-market manufacturers.

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