Supply Chain

Why Supplier Loyalty Pays

Supply Chain Management Review • Joe Sandor

We tend to build relationships with suppliers cautiously and can take suppliers for granted. Lasting relationships seem to develop only after years of arms-length dealings. Even then, relationships are regarded as tenuous and temporary, and are more likely to develop between individuals who have discovered they can leverage each other's benefits through close cooperation than whole organizations or departments.

Organizational commitment to strengthening supplier relations is relatively rare. In contrast, marketing and human resources have spent decades driving improvement in customer and employee satisfaction and refining measurements and metrics to track their performance. Recently, however, supplier loyalty has been getting attention. Current supply management literature around supplier relationship management (SRM) and recent trend studies have shown that some organizations seem to have a better cooperative culture that accordingly earns sustainable-supply advantage. Part of the effort to improve supplier loyalty requires a solid understanding of current supplier perceptions. This is where I believe GM's Strategic Supplier Engagement/360° Methodology comes in.

For the past couple of decades, business pundits have linked success to customer focus and employee satisfaction. Indeed, every Arm aspires to be both the supplier and employer of choice. Pleasing customers and attracting and retaining the best employees remain critical components of success. Arguably, in today's globally competitive markets, loyal customers and employees are even more important. But there are three loyalty legs to the business success stool: customers, employees and suppliers. And yet, the supplier leg is not only neglected, it is both the fattest and, perhaps, the best opportunity for overall business improvement because that's where the money is. In GM's case, over 70% of its cost of goods come from purchases of goods and services. The huge value of purchases means a far greater reliance on suppliers. And the dependence on suppliers has been growing fast. Clearly, only those customers who earn preferential treatment from their suppliers will thrive.

Unfortunately, most buyers live in Lake Wobegon. They genuinely believe that they are their suppliers' customer of choice. But only 5% of all customers regularly receive preferential treatment from their suppliers, according to a recent Procurement Strategy Council survey of hundreds of key account managers at Fortune 2000 companies. There is ample evidence that improving your working relations with your suppliers increases supplier-driven innovation and reduces TCO. As you can see from this article, GM is moving from the center column to the right-hand column and aims to be in this exclusive 5%.


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