What should FMCG companies look for in a strategic supplier relationship?
Strategic relationships and partnerships are critical to every organisation and can deliver incredible results – superior operational performance, supply chain assurance, innovation, faster time to market, product quality and improved financial performance.
Increasingly, fast-moving consumer goods (FMCG) brands see their suppliers not simply as vendors but as key assets in realising their business strategy. Strong, healthy strategic relationships with suppliers and partners can mean better value for your business, as well as increased cost effectiveness and productivity.
Measuring the value of a strategic supplier relationship is difficult as so many of the benefits are often intangible. However, these are four factors that should be of key importance to any FMCG companies when it comes to supplier relationships. If these four points are effective, they should work together to help build ROI into your strategic supplier relationship:
1. The best price
In this period of inflation and economic volatility, procurement professionals should of course be focused on cost, but more importantly on value. Therefore, the ‘best price’ is not necessarily the lowest price, but a fair price for both the supplier and the customer, where both can benefit from a sustainable margin. This leads to a lasting supplier relationship which is advantageous for both parties.
2. Operational effectiveness
As anyone operating in the FMCG sector is well aware, your supplier’s operational effectiveness can have a significant impact upon your own. In a market where “Fast” is literally the name of the game, any delays in operation can cause major issues.
Being ‘out of stock’ is the number one factor impacting ROI for those in the FMCG sector. A supply chain disruption can cost a manufacturer financially, cause harm to a brand, and drive customers to competitors. Forging a relationship with a supplier who is consistent, reliable, and fast is key to avoiding this kind of disruption and achieving success in the FMCG sector.
When choosing suppliers, FMCG companies should assess technical expertise. Consistency of supply is crucial: does the supplier deliver
– On time
– On budget
– Have streamlined use of resources
– Have a fast response to increase in demand?
Speed to market should also be a KPI. Being first to market means:
– Locking out a competitor
– Being first in the minds of the consumer
– Greater market penetration and expansionThe length of time in bringing a new product to market is of critical importance for ROI. With this in mind, a successful supplier relationship is one where your supplier contributes to your effectiveness in capitalising on new market opportunities.
3. Quality
When it comes to quality, there are two key factors that FMCG companies should be looking for from a supplier:
- Is the quality consistent, in keeping with the brand’s promise?
- Is the quality maintained during rapid increases in demand?
The impact of quality control cannot be underestimated. The cost of the 2022 Ferrero recall of its Kinder products is likely to exceed $60m since it is comparable to the Cadbury plant closure in 2007 where costs were estimated at $59m. The latter involved a recall of more than one million chocolate bars in the UK and Irish market and sales in those markets fell as much as 14%.
4. Innovation
Innovation is crucial to any brand’s survival. However, many brands don’t have the budget to be able to innovate as much as they might like to in house. Many FMCG brands lack adequate resources to undertake all their planned projects, and development personnel are overcommitted in terms of their workload which slows down innovation.
However, the correct supplier relationships can help to solve this problem. Companies in the FMCG sector should look to forge relationships with suppliers who can bring extra value through technical expertise and innovation. By bringing this skillset to the relationship, the supplier can have a significant impact on ROI.
Strategic supplier relationships for the FMCG sector: how Accelerate can help
Supplier relationship management is about defining, measuring, and improving supplier performance and is vital to organisational success. By understanding supplier performance, an organisation can determine which suppliers provide the best value and products and which ones require improvement.
If you are keen to improve strategic relationships and partnerships within your organisation and feel that our Strategic Relationship Diagnostic could help then try our free tool to see whether your relationships could benefit Accelerate-SRM-Lite (accelerateprocurement.com)