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If your business manufactures, orders, sells or distributes physical products, you’re almost certainly part of a supply chain. But are you part of a supply chain partnership?
Well, that depends on how closely you collaborate with your manufacturers, suppliers or distributors. Do you work together to achieve shared goals? Or is every business just out there for themselves?
Here, we’ll take a look at everything to do with supply chain partnerships – from their benefits to where they can go wrong and how to create them. But first…
What are supply chain partnerships?
A supply chain partnership is when two (or more) brands team up from different parts of a supply chain.
Being part of a supply chain essentially allows one brand to outsource the manufacturing of a product to a supplier, saving them time, money and resources. Meanwhile, the supplier gets to focus on doing what they do best (actually making the product) without having to worry about marketing or distributing it to the end customer.
In a more complex supply chain, you might find that there are multiple manufacturers, all providing individual parts of a larger product. You might also find that there are multiple re-sellers, from distributors and wholesalers to retailers.
But what actually makes businesses supply chain partners, as opposed to just a vendor or a ‘preferred supplier?’ It’s a good question and one that doesn’t always have an easy answer.
Usually, a strategic supplier partnership involves a more intimate relationship than simply paying another brand to fulfil a specific quota. It will involve both brands sitting down with one another to regularly evaluate how the partnership is working and what they can do to make sure it brings maximum benefit to both parties.
The partners should also have a shared vision and strategy, and both should have some skin in the game. In other words, to be a strategic partnership, it’s important that there isn’t just one brand taking on all of the risk. Instead, both partners should stand to either benefit or lose out based on a partnership’s respective success or failure.
What are the benefits of supply chain partnerships?
A supply chain partnership can bring lots of different benefits to the businesses involved, depending on what exactly they are hoping to get out of a mutual collaboration. Here are a few.
- Reduce costs. Businesses can share costs and risks with other entities across the supply chain to lower costs overall.
- Fullfil orders quicker. Working together to improve the efficiency of certain parts of the supply chain can allow products to reach the end customer more quickly.
- Improve customer service. Being able to deliver products to customers more quickly can lead to improved customer satisfaction. Pooling knowledge can also enable you to answer customer queries more accurately and efficiently.
- Improve forecasting. Open communication across a supply chain can enable suppliers to better understand demand. In this way, it can help prevent items from going out-of-stock, as well as reduce waste resulting from excess inventories (products that exceed consumer demand).
- Become more eco-friendly. Partners can work together to make their supply chains greener. For instance, they could agree on more eco-friendly packaging or jointly invest in reducing a product’s carbon footprint.
- Be more competitive. Collaborating closely across a supply chain can enable you to stay ahead of your competition by being competitive on things like pricing, delivery time and customer service.
- Strengthen promotions strategies. By touching base about planned promotions, suppliers can prepare for an increase in demand. Partners can also ensure that the loss of earnings from discounted items is split fairly across the chain.
- Improved quality. Businesses can collaborate to ensure that the individual parts they’re manufacturing will work together in synergy to create a high-quality product overall.
Why create supply chain partnerships?
Let’s start by looking at what happens if you don’t collaborate closely with the other businesses in your supply chain.
Well, supply chains can be a bit like a game of Chinese whispers. As information gets passed along the chain, it gets distorted – which, in turn, can lead to inefficiencies. Ultimately, this means lost profits, slow response times, excess inventories and lost business.
From a manufacturer’s point of view, a lack of collaboration also means shouldering the burden of volatile input prices alone. This can put a squeeze on profit margins and give suppliers less and less room to absorb additional costs.
In contrast, businesses that work closely with supply chain partners are gaining big advantages.
A study by Coresite revealed that grocery and drug retailers who focused on improving supplier collaboration saw a whopping 20% increase in revenue, directly or indirectly. The retailers surveyed also cited benefits such as more productive meetings (74%), higher customer satisfaction (65%) and improved time management (62%).
Meanwhile, among the suppliers, 56% said they benefited from higher customer satisfaction, while 55% enjoyed more productive meetings and 52% cited improved business planning as a top benefit.
Oxford Economics revealed that 65% of companies are becoming more collaborative and strategic with suppliers when it comes to procurement. So, if you’re not investing in more collaborative supply chain relationships, the chances are your competitors are – which will give them a competitive advantage!
Where do supply chain partnerships go wrong?
The main issue with supply chain partnerships is that partners from different ends of the supply chain can have incongruous goals.
Dr Andrew S Humphries is an expert in improving the performance of collaborative business relationships. He puts it like this:
‘Supply chain partnerships run into problems because, on the supplier’s side, the measures of success focus on time, cost, and quality, whereas your perspective likely focuses on sales and revenue.’
In other words, if we assume that you’re a retailer, you want a high-quality product that will help you to boost sales, your reputation, and your customer satisfaction rate. On the other hand, your suppliers will make the most profit by reducing the time and cost that it takes to manufacture the product. This can lead to sacrifices in quality.
Although outsourcing the manufacturing of your product might allow you to save time, money and resources compared to producing your product in-house, it might not always be the best option for you. You might find it difficult to relinquish the control that you get from keeping processes in-house, and you may run into trouble if outsourcing leads to a sacrifice in quality.
Dr Andrew S Humphries states:
A supply chain partnership only works if each party involved can meet with end customers’ expectations for quality and price while remaining individually profitable.’
So, how can you avoid these pitfalls?
Collaboration, collaboration and collaboration!
We know that the niggles we’ve mentioned might seem insurmountable. But in reality, these are problems that apply to supply chains in general – not just to supply chain partnerships. The whole purpose of a supply chain partnership is for businesses to work together to iron out issues like these, in order to lead to a more positive experience for everyone involved.
Earlier, we mentioned that suppliers may cut back on quality in order to increase their profit margins. Yet if you put yourself in a supplier’s shoes, it’s easy to understand how this might happen – input costs are rising and can be volatile, leading to small profit margins. Plus, suppliers are often left shouldering the cost of excess inventories, where poor communication from further down the supply chain has led to misunderstandings around customer demand.
By collaborating more closely in a supply chain partnership, businesses can work together to make sure that the relationship is working well from all parties’ points of view. For instance, partners could share the cost of raw materials so that no one side is left bearing the brunt of fluctuations in price. Similarly, they could work more closely together on forecasting, to reduce waste.
Ultimately, partnerships are all about putting yourself in your partner’s shoes and trying to understand things from their perspective. It’s important that both parties involved in a partnership gain equally as, if one party is losing out, it’s only a matter of time before both do.
The one thing we’d say is that, just like every other example of outsourcing, it’s important to keep any processes in-house that form a key part of your brand’s identity. Even with the best partnership in the world, delegating means giving up some control. And there are some things that it’s important to retain tight control over in order to keep your identity intact.
How to create a supply chain partnership
Now you know all about the great things that a supply chain partnership can bring your business (and the other businesses in your supply chain!), there’s just one thing left – officially getting your partnerships started.
So, how do you actually go ahead and create a supply chain partnership?
Well, there’s no set route you have to follow. But here’s a general guide that should help.
1. Think carefully about who the right partners might be
Do your research to narrow down a list of brands that’d make good partners for you. Finding the right fit comes down to a number of factors, including shared values, expertise, culture, reputation and infrastructure.
When it comes to supply chain partnerships specifically, you’ll also need to consider a supplier’s timeframes – as well as whether they have the capacity to meet your needs now and in the future (assuming you experience an increase in demand as you grow).
Don’t forget that Breezy can help you to quickly uncover thousands of hyper-relevant partnership prospects, and narrow them down, with our powerful partner search engine.
2. Consider your existing supply chain
If you already have a solid supply chain in place, then take a look at your current chain. Ask yourself what the issues are from your perspective – where are the inefficiencies and where is there potential to improve?
Contact the businesses involved in those parts of your supply chain to see if you can work together to improve things for you all. Just make sure that you don’t play the blame game, and that you take the time to listen to their experiences and concerns too. Which brings us onto…
3. Settle on shared objectives
One of the most common reasons why partnerships fail is to do with a lack of alignment around objectives. Without a shared idea of what constitutes success in a partnership, you’ll find it really hard to achieve anything.
It’s important to note that you and your partner don’t necessarily have to want the exact same things. However, you’ll need to incorporate both your needs into a shared goal for the partnership that you can both get behind.
Your goals should be SMART (specific, measurable, attainable, relevant and time-bound). This will ensure that you can easily agree on whether you’ve achieved them.
4. Create a shared strategy
Now that you know what you want to achieve, it’s time to create a plan! Work with your partner to brainstorm some activities and tactics that you can use to reach your objectives.
Make sure to delegate each task so that everybody knows what they’re responsible for. And don’t forget to really get into the nitty-gritty – what are the deadlines? Who needs to approve things? How often will you touch base with one another?
It’s important to lay everything out in writing so that you’re all on the same page. That way, you can avoid any confusion or disagreements later down the line.
Finally, don’t forget to measure your partnership’s success using the measurable goals and strategic partnership KPIs you created at the beginning of your collaboration. It’s important to discuss the results with your partner so that you can learn from your successes and mistakes together.
If you’re struggling to meet your partnership’s objectives, discuss any changes you could jointly make to help get things back on track. Or, if you’re easily meeting your objectives, consider whether there are other ways that you could work together to bring even more benefits to both parties.
Remember that your goals and strategies don’t have to be set in stone. If it becomes clear that making changes would be beneficial, that’s totally fine (as long as you both agree!). Just make sure that you don’t jump ship if you’re not getting immediate results. Some benefits will take a while to become apparent. And sometimes, you may not achieve what you set out to, but you may still benefit in other, unexpected ways.
As you can see, collaborating closely with the other businesses in your supply chain can bring heaps of benefits to your brand – and your supply chain as a whole!
Whether you’re looking to save time, reduce costs, improve quality or give yourself a competitive advantage, you’ll often need to look no further than your supply chain. In fact, our selection of supply chain partnership examples offers all the inspiration you need.
If you’re ready to form some exciting new partnerships of your own, remember to book a demo for Breezy. We can’t wait to show you how our partner intelligence and discovery platform can help you take your partnership game to the next level.