Building Stronger Relationships: Effective Approaches to Multi-Tier Supplier Collaboration
A chain is only as strong as its weakest link—but what if you can’t evaluate the entire chain? Tier 1 suppliers and their suppliers—and their suppliers’ suppliers—make up an organization’s multi-tier supply chain. Collaboration across Tier 1, Tier 2, Tier 3, and beyond requires visibility and communication regarding capacity, cost, risk, order quantities, inventory levels, quality, timelines, logistics, and more.
Multi-tier supplier collaboration involves building transparency with and beyond your first tier suppliers. The strong handshake made with Tier-1 in the initial onboarding phase—complete with profile information—makes collaborating with first-tier suppliers easier. Following a forecast to suppliers, a Tier-1 supplier collaborates with its suppliers—Tier 2 for the buyer—to obtain critical components for producing products and/or services.
Importance of Supplier Collaboration
Supplier collaboration is the process of connecting and working together with trusted supplier partners to achieve agreed-upon business goals and initiatives. In the absence of communication, even the best suppliers can only deliver marginal value at best.
For optimal effectiveness, supplier selection, contract management, and supplier development must be supported by consistent, streamlined, and transparent collaboration. Collaboration brings visibility and agility for gaining market share. Another benefit is more resilient supply chains that can profitably weather disruptions when the best-laid plans are interrupted.
Key Strategies for Enhancing Collaboration
From efficiently negotiating terms on a bid to determining supplier capacity in a high-risk category, supplier collaboration works to your advantage. Enhancing collaboration pays off, both by increasing transparency with suppliers and improving the bottom line through multi-tier supply chain visibility. Here are key strategies to take you there:
- Utilizing technology platforms: Next-generation source-to-pay (S2P) platforms should offer integrated—not isolated or siloed—supplier management capabilities to make supplier information available across all business functions. Access to supplier profiles, performance data, risk factors, and transactions—even down to the level of component receipts—helps you collaborate more effectively to increase customer satisfaction, better manage risk, and streamline operations.
- Improving and developing suppliers: With integrated supplier relationship management (SRM) capabilities in your business model, you can make great strides in supplier development.. Partnering collaboratively with full visibility and a fee-free network, you can systematically and strategically improve cost reduction, quality, on-time delivery, and technology.
- Accessing a full-service supplier network: Success and competitiveness hinge on the effectiveness and robustness of an organization’s supplier network, which is pivotal to enhancing collaboration.
- Leveraging advanced analytics: You can use analytics to identify top-performing suppliers as well as address any issues based on supplier performance metrics. Analytics also help you better evaluate potential suppliers, pinpoint cost-saving opportunities, and strengthen future sourcing strategies. Multi-tier supply chain analytics and predictive analytics help mitigate supplier risks and strengthen your supply chain.
- Visiting supplier sites: Evaluating and getting to know key suppliers through onsite visits reinforces supplier connections. Viewing site conditions firsthand—such as a walk-through of a key components supplier’s factory—also gives you a more accurate impression.
- Using strategic language in contracts: Understanding suppliers’ cost structures, strengths, weaknesses, performance, and value-add strengthens collaboration and enables you to negotiate better contracts for long-term savings. By including certain clauses, you can protect your organization if you must adapt to declining markets.
- Improving quality management: Best-in-class quality management incorporates supplier collaboration as a prerequisite. Work collaboratively with suppliers in real time to improve parts and material quality while responding quickly based on demand forecasts. A supplier portal solution seamlessly integrated into your ERP system allows you to plan, execute, and document audits and tie quality management to upcoming purchases.
- Managing interdependence among suppliers: Supplier interdependencies can create uncertainties, such as competition between suppliers for limited resources. Or it can create opportunities, like economies of scale and coordinated deliveries among smaller suppliers. When interdependence exists, handling the relationship with each supplier slightly differently to suit the supplier or situation can enhance collaboration and potentially bring better results.
The Role of Communication in Supply Chain Collaboration
Communication puts collaboration in motion. Procurement teams need opportunities to communicate regularly and honestly with suppliers to increase transparency, improve visibility, strengthen relationships, optimize multi-company collaborative planning, and gain more control over the entire supply chain.
Capturing communications with suppliers within and outside your ERP system to create a single source of truth helps you minimize the risk of data errors. An all-in-one platform enables open supplier communication in a trust-based, collaborative environment that boosts quality and lowers costs.
Benefits of Real-Time Data Sharing
Real-time data sharing brings your organization current with suppliers and informs you of any changes or critical information you need to know. The advantages are many:
- Improved agility and communication due to the removal of data silos and disconnects
- Increased data accuracy to accelerate decision-making, especially during supply chain disruptions
- Early identification of risks such as shortages
- Improved supply assurance and increased reliability
- Greater resilience and the ability to leverage “what-if” scenario analyses
- Practical assistance for suppliers participating in a bid
- A more robust information structure when integrated with third-party data sources
- Up-to-date information for building a culture of transparency and integrity
Challenges in Implementing Multi-Tier Collaboration
Optimal multi-tier collaboration requires transparency and communication with Tier-1, Tier-2, Tier-3, and any remaining sub-tier suppliers and component suppliers. Seeing past Tier 1 can be challenging for many companies, even with the most advanced planning platforms. In fact, the EcoVadis 2024 Sustainable Procurement Barometer report revealed that a mere one-fourth of organizations can boast of having over 50% visibility into Tier 2.
Leveraging third-party supplier assessment partners such as EcoVadis, Dun & Bradstreet, TealBook, and Prewave can give you a picture of a supplier’s supply chain performance, sustainability, regulatory compliance, risk level, and more. You can also gain awareness of events like unexpected weather changes or supplier factory mishaps and take action to mitigate the impact.
Integration is another challenge. Supplier Management solutions address the issue by providing a central repository for collecting and assessing supplier information, making it available across enterprise processes through full integration. The system can also incorporate data from various departments and stakeholders.
Best Practices for Multi-Tier Collaboration
A 360-degree view of your suppliers is foundational to multi-tier collaboration. These best practices can get you started:
- Establishing visibility across as many tiers as possible using information from assessment and sustainability partners
- Segmenting your suppliers according to item, quantity, location, pricing, or another defining factor to gain visibility and control
- Creating a supplier strategy during business planning that takes your segments and strategic suppliers into account, works for all parties, and drives value through mutually beneficial relationships
- Executing and monitoring your supplier strategy by leveraging SRM tools to track the strategy’s performance so real-time adjustments and longer-term performance improvements can be made for more effective responses to consensus demand plans
- Determining supplier risk using inputs such as capacity, procurement-specific risks, historical data, financial risk scores, compliance management software, fraud prevention, corporate social responsibility (CSR), and supplier diversity
- Establishing strong relationships with suppliers by collaborating, correcting poor performance, monitoring compliance, and encouraging innovation
- Improving data quality and integration by selecting a platform architecture that integrates vital information such as supply risk intelligence data feeds
Measuring the Impact of Collaboration on Supply Chain Efficiency
You can benchmark and continuously improve supply chain efficiency by proactively defining key performance indicators (KPIs) and metrics of success for supplier collaboration. This is often tricky, but here are some broader categories to target:
- Cost optimization: On the surface, your efforts might not appear to be the cheapest. However, establishing supply continuity, improving the customer experience, and minimizing risk across multiple supplier tiers can pay untold dividends.
- Environmental, social, and governance (ESG) goals: Your overall ESG footprint is impacted by suppliers. Through collaboration, you can influence your suppliers, make strategic sourcing decisions that improve sustainability, and gather data to measure the impact and add to your ESG report.
- Supplier innovation: Linking supplier innovation KPIs to elements such as savings, increased market share, risk reduction, and product usability helps you measure the business impact.
Streamlining operations and collaborating deep into the sub-tiers of your suppliers don’t have to be mutually exclusive. With the right partnership of technology combined with an arsenal of superior third-party partnerships has you covered at Tier 1, Tier 2, and beyond.