Fleet News

Techniques for supply chain relationships

The traditional methods of developing relationships within customer and supplier frameworks has evolved significantly since the inception of supply chain management (SCM) back in the mid-90s. 

In today’s world of e-commerce and globalised supply chains, managing the customer relationship requires strict adherence to the key principles involved. These include:

* Maintaining effective lines of communication.

* Understanding the stages of customer loyalty.

* Adapting the business model to suit the end user client.

* Providing excellent customer support.

These principles will enhance the trust factor and build a platform for longer-term customer/supplier relationships.

The process must, by its very nature, now operate on a cooperative rather than adversarial arrangement and the days of the latter are perhaps progressively being confined to history.

It is now more commonly accepted that an increasingly beneficial relationship can be developed through cooperation with potential suppliers, plus a greater understanding of their businesses and the range of goods/services that they can supply.

In an adversarial relationship, there are much higher risks, with an unsatisfactory contractual position often the inevitable result. The overall value of the relationship may well be brought into question.

There is a commonly accepted principle that ‘people do business with people’ and fleet stakeholders on both sides of the corporate relationship will generally operate more efficiently with those that they trust, understand and respect.


So where should you start?

Supplier appraisal, which is undertaken at the pre-contract stage, should be considered as the natural start point since it is vital in developing solid business relationships. 

It is also important to understand the difference between this stage and the vendor rating stage, which is undertaken after the contract has been awarded.

Before starting supplier appraisals, it is important to strike a balance regarding the extent to which the suppliers are ‘vetted’ and apply the right level of proportional time and effort in line with the type of goods or services being acquired. There is also a need for both the customer and supplier engaged in the process to recognise that relationship management is significantly enhanced by the provision of informative and pertinent information, covering all elements of pricing, service delivery and quality.

The most successful customer/supplier outcomes are built on price, delivery and quality (PDQ for short) and, typically, they could include the following examples.

1: Pricing

Competitive pricing prices quoted should be comparable to other suppliers providing similar product and services.

Price stability check for evidence that costs will be reasonably stable over time.

Price accuracy evidence that with other clients there has been a low number of price variances from purchase order to invoice.

Price updates advance notice of price changes that could negatively affect cashflow.

Cost sensitivity what to look for here is a supplier’s ability to demonstrate respect for their customer’s bottom line, coupled with an insight into proven cost-saving techniques.

Billing seek evidence of invoice submission accuracy and creditor days’ performance.


2: Delivery

Time does the supplier have a good reputation for delivering products and services on time – are requests for information, proposals and quotes swiftly answered?

Quantity does the supplier also have a good reputation for delivering the correct items or services in line with the contracted quantity?

Lead time is the average delivery time comparable to that of other suppliers for similar products and services?

Documentation can the supplier furnish evidence of robustness with documentation (delivery notes, technical documents, invoicing etc.)?

Walking the talk does the supplier have a good track record for meeting/exceeding agreed SLA/KPI targets?


3: Quality

Compliance does the supplier understand your expectations? Can they show compliance to recognised standards in all required areas – environmental,  safety, information security, quality control, etc. 

* Any statutory requirements?

* Can the supplier comply with your required terms and conditions? 

* Conformity to specifications – measure each supplier’s ability to conform to the specifications identified in your initial request for information.

Reliability is there evidence of a high rate of service or product failure? 

Durability what brand awareness exists for the specific supplier’s products?

Support is there evidence of high-quality support available from the supplier? 

Warranty the length and provisions of warranty protection offered should be compared and measured against all other supplier products

Innovation does the supplier offer products and services that keep pace with industry progress? 

This list is purely indicative and the actual content should, of course, be structured to meet individual requirements for specific businesses. 

This is where the process of supplier rating comes into its own and the obvious objective is to select suppliers that can work in partnership and assist in determining mutually satisfying goals and developing a business relationship platform that is built on solidity and reliability.

A balanced scorecard is a sound basis on which to establish a strategy for potential supplier assessment performance management. This approach primarily refers to a performance management system that highlights two elements:

*   The comparison of a common range of products or services.

*   Weighted measurements against each product or service. 

The weighting applied should be linked to the requirements of a customer and include a mix of financial and non-financial elements.

Simplistically, a business might have a 95% weighted target for the cost of the service required and a 5% weighting for the timescale involved, as compared to another business where the timescales are of greater importance and therefore weighted differently (say 65%/35%).

It is important to exercise care when weighting specific elements of supply chain requirements to ensure they meet precise business needs.


Building confidence in relationships

The key to success is a commitment by both customers and suppliers, regardless of size, to a long-term relationship based on clear mutually-agreed objectives to strive for best in class capability and competitiveness.

While this may sound like a highly principled idea that has little practical significance in developing relationships with suppliers of motor vehicles and motor trade services, the principles are sound and of particular relevance where the services to be provided are of a complex and wide-ranging nature.

By developing an effective customer/supplier relationship, transactional knowledge will result that will improve efficiency and reduce costs.

Customer responsibilities

Should ensure they treat their suppliers fairly and with respect and support their efforts to seek continuous improvement.

Invitations/meetings to discuss/resolve supply difficulties are helpful in building confidence.

Ensuring suppliers are paid correctly and on the agreed terms is also a key element, particularly where high capital costs are involved.

Include suppliers on corporate publications/newsletters circulation, which, while intended primarily for staff, would also improve a supplier’s understanding of a buyer’s own business.


Supplier responsibilities

Should work diligently to build rapport and establish valued connections with their customers.

Communicate and act with professionalism at all times and manage their customers and clients efficiently.

Understand and manage client expectations and be creative in finding sophisticated solutions.

Manage conversations with flare and nuance and be flexible in their approach to client needs.

Finally, all that now remains is to award the contract, but remember, this is only half of the overall equation.

Now comes the more in-depth task of managing the vendor rating process.

Would you like to know more? For expert help and advice consider joining the ICFM. Contact administration@icfm.com for more information.

Peter Eldridge joined ICFM in 1993, making him one of its longest-serving members.

The ICFM was founded in 1992 and remains the UK’s only independent, not-for-profit organisation dedicated to furthering the education, recognising the achievements and advancing the profession of car and light commercial fleet management.

Eldridge joined the ICFM steering committee in 1996 and became a full council member in 1997. He was appointed a director in April 1999 and is regarded as one of the institute’s strongest lead tutors. In 2011, he was inducted as an honorary fellow.

Eldridge now focuses his time on the ICFM. He has enjoyed a successful fleet industry career which started at Fiat Auto UK in 1963. It included spells as fleet manager of a large blue-chip fleet operation and senior management positions within the franchised motor trade.

* For information about ICFM leadership and management training, go to www.icfm.com


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