Why supplier relationship management matters and tips for builders
Finding a quality supplier for your construction business is easier said than done. It’s a process that demands due diligence, patience and reference checks.
Still, a good supplier relationship can mean the difference between a project that’s on time and on budget – and one that’s not.
In this blog, learn the benefits of building strong supplier relationships. Then, pick up tips on how to build them into your own business.
The top 7 benefits of supplier relationship management
Check out the top benefits of having good relationships with your suppliers.
1. Long-term cost savings
Suppliers play a key role in keeping projects on budget. Builders can buy materials in bulk from trusted suppliers to save on material costs long term.
While you’ll need to ensure you have the project demand to handle the influx of inventory, this is a great way to think long-term about cost savings. It’s also great for your future profit margins.
What if you need ways to save on construction materials and supply costs now? Suppliers can also help save money in the short term using rebate programs.
Builders can use rebates to recover money spent on qualifying purchases. Often, this includes material categories like large appliances or plumbing fixtures.
Rebate programs result in win-win financial situations for both builders and manufacturers. Builders experience cost savings and better cash flow, while manufacturers are able to sell higher quantities of materials.
While they’re proven to help efforts of building on a budget, rebates can be hard to track and manage. Rebate management software can simplify the process, making sure you receive the cash you’re owed.
2. Keeps builders on schedule
Good suppliers can keep your projects on schedule. Buying in bulk helps ensure all construction supplies needed are at hand.
Established relationships motivate suppliers to fulfill order requests. That’s because they’re hoping for repeat business from the builder.
One of the main differentiators of an established supplier relationship and one that’s new or untested is trust. When a builder-supplier relationship is nurtured, there’s more likely to be trust between both parties.
With trust comes transparency. As a builder, it’s your job to come to the table with clear objectives, timelines and project scope. A supplier can then offer real transparency into supply shortages and delays.
The combination of both actions leads to realistic timelines and planning, with less overruns all around.
3. Supply chain insight
Most suppliers have better insight into the supply chain market than anyone else. They’re in constant contact with manufacturers, sellers and delivery channels. With this knowledge, they can help guide you on the best times to buy, especially if you’re planning to place a large bulk order.
They also have the most insight into supply chain issues. This knowledge can help builders avoid delays and sudden price hikes that can dip bottom-line profits.
Some material costs, like lumber, are beginning to decline after record-breaking years. Still, some sources are estimating another pricing surge, especially given war-impacted lumber imports.
Combined with looming recessions and lingering impacts of COVID-19, supplier insight is necessary. It can ensure builders cut lead times, fill orders and avoid material shortages.
4. Improve forecasting and planning for the future
Some builders are hesitant to share forecasts of future business requirements. If demand changes, builders don’t want to be on the hook for inventory they don’t actually need to buy.
Planning for demand and sharing those forecasts with suppliers can help improve both of your procurement plans.
While it’s easy to get caught up in the busy schedules of your ongoing projects, thinking about the future should always be top of mind.
5. Supplier consolidation
Focusing your energy on a few, quality people is a lot easier than dividing attention between a large group of suppliers.
That said, narrowing down your supplier strategy to a single resource can hold some risk. Purchasing power can be limited to what that one supplier can accommodate. There’s a higher risk in losing out on deliveries altogether if the supply chain is interrupted.
Putting your eggs in one basket may seem like the easiest choice in forging a strong supplier relationship, but it can make you dependent on that one supplier.
Instead, develop a small network of suppliers. By keeping your supplier group small, you can reap the benefits of strong relationships. Meanwhile, you still pick and choose between rebate programs, prices and inventory selection. If something does fall through, you already have vetted suppliers in place to help keep you on track.
6. Operations improvement
Managing a smaller network of suppliers is also less work for your team. A single supplier relationship can include many points of contact. Each one has a different sales rep, ordering system, billing process and after-sales support contacts.
If you multiply those contacts across a large list of vendors, the result is a lot of time spent on overhead administration. When you’re already busy, that’s not realistic.
A small, targeted range of suppliers allows you more flexibility to build real relationships with less people.
7. Improved customer relationships
Believe it or not, suppliers have a direct impact on whether a client is happy with project outcomes.
Reports claim over half of home buyers have a negative experience when building a home. Often, this is due to stretched budgets and construction delays.
Your clients’ experience is a ripple effect from the materials and supplies you source.
Suppliers can help manage buyer expectations by providing clear estimates and communicating disruptions. Suppliers who value your business will work with you to counteract these as they occur. That way, there’s less impact on customer experience.
How to improve your supplier relationship management strategies
Now that you know the benefits of strong supplier relationships, it’s time to start building them.
Sometimes the easiest way to decide what’s working well is by stepping away from what you know isn’t working at all. Do you have suppliers who experience supply chain issues outside of what’s to be expected? Are there suppliers who have disputed purchase orders or agreements? Has there been a been a breakdown in communication in any stage of the purchasing process?
Start by weeding out these low-performing vendor relationships. Depending on how many suppliers remain, consider shopping around based on your upcoming project needs. Make sure you check buyer perks, like rebate programs, alongside direct materials costs. Other important considerations should include quality, flexibility and business reputation.
Once you have a short list, be up front with your expectations and the value you’re bringing to the table. If you have key performance indicators in place, share them with your supplier so they know from the beginning. By being transparent from the outset, you can build trust faster and realize the above benefits even sooner.
Finally, remember that a mutually beneficial relationship is a two-way street. You should be striving to be a builder of choice for your suppliers just as they’re working to become a supplier of choice for you. Make sure your contracts and purchase orders are clear. Pay on time. Be open to communication, and provide schedules and forecasts up front.
Are you looking to improve relationships across your construction business? Learn more about building strong client relationships and subcontractor relationships. Then, implement a construction technology tool that can handle them all.
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