How Strategic Supplier Development Makes the Supply Chain More Resilient

1. What does strategic supplier development mean?
2. Close collaboration with suppliers – the benefits for companies
3. This is how strategic supplier development succeeds
4. These challenges exist in building stable supplier relationships
5. Conclusion

The crises of recent years have repeatedly made it clear: Long-term and stable relationships with suppliers increase the competitiveness of companies and strengthen their own supply chain. Strategic supplier development is part of supplier management and an ongoing process aimed at continuously improving the relationship with the supplier and strengthening their competence.

In this context, a distinction is made between active and passive supplier development. In active supplier development, both the customer and the supplier are equally involved in the processes and work together on strategies and targeted measures for performance improvement. Examples include training for suppliers, implementation of improvement plans, or promoting innovations to jointly develop new ideas or solutions. Here, a high level of commitment is also required from the companies. In passive supplier development, the goals are defined by the customer, but the supplier has control over how they fulfill the agreements, identify weaknesses in their performance, and optimize processes. The companies are not proactively involved in the development and implementation of measures for the suppliers.

However, in strategic supplier development, it should always be a priority that both sides benefit from the collaboration. Through collaboration between companies and suppliers, information can be exchanged, resources can be shared, and workflows can be optimized – a competitive advantage that the majority of surveyed German companies in the 17th Hermes Barometer consider a decisive factor for greater efficiency in the supply chain.

Strategic supplier development brings several advantages for companies. On the one hand, those responsible can improve supplier quality: Through careful selection, stable relationships, and intensive exchange with suppliers, they ensure that high-quality standards are met and errors are identified and corrected early. They are supported by specialized SCM software that facilitates monitoring and makes the supply chain more transparent. Optimized procurements, more efficient logistics processes, and sharing of resources reduce costs. Joint planning and coordination of processes avoid delivery bottlenecks, and deadlines can be better met. This strengthens the supply chain, which in turn results in an increase in competitiveness.

On the other hand, companies benefit from the know-how of suppliers, who often bring expert knowledge and experience in specific areas: This gives them access to new technologies or innovations and allows them to optimize or rethink their own processes and products. Another advantage is the reduction of risks. Strategic supplier development includes not only strengthening individual relationships and collaborating on risk management but also building alternative suppliers: Diversifying the supply chain can prevent serious bottlenecks in procurement and production. Regular audits and reviews also document the performance of suppliers, allowing potential problems to be identified early.

Strategic supplier development is a promising method for companies to minimize the risk of disruptions in the supply chain and generate improved value creation together with suppliers. It usually occurs in several steps:

1. Identify key suppliers: First, companies must find suppliers that are strategically necessary for their supply chain and capable of meeting the requirements and demands. They provide the deliveries of core products and services and should be selected based on criteria such as reliability, flexibility, quality, strategic importance, and innovation capability. It is advisable to establish fixed contacts and responsible parties with clearly defined responsibilities from the outset to facilitate communication and be able to act directly in case of a crisis.
2. Define performance goals and metrics: When selecting suppliers, performance goals should be defined during negotiations to measure and verify the extent to which agreements are adhered to. This includes delivery reliability, product quality, innovation capability, as well as cost optimization or adherence to delivery times.
3. Evaluate suppliers: A key component of supplier management is the regular evaluation of suppliers. This allows the strengths and weaknesses of existing or potential suppliers to be objectively assessed and compared with others, and improvements can be worked on together. Evaluating suppliers can be time-consuming: Here, appropriate software solutions can help that take ISO standards into account, thus minimizing the time required and the risk of misjudgments. The software checks and evaluates the supplier based on various criteria defined by the company. For example, the requirements of the planned EU Supply Chain Act can also be considered, ensuring legal protection.
4. Develop measures to improve performance: The evaluation results form the basis for setting concrete measures such as training, process optimizations, or project developments so that suppliers can increase their efficiency, quality, and innovation capability and continue to develop. Companies can actively support them in this.
5. Implement and monitor measures: To ensure that the measures for performance improvement are implemented, they must also be monitored, for example, through regular audits and performance reviews. Only in this way can progress be documented and any necessary corrections made. At the same time, companies protect their reputation and business processes by monitoring supplier performance.
6. Acknowledge the long-term process: It is important not to rest on the choice and establishment of a supplier but to continuously work on the relationships, promote them, and also put them to the test. Ultimately, a partnership should emerge: Through feedback, regular meetings, or joint project work, companies can engage in active exchange with suppliers and increasingly promote and strengthen mutual trust.

These processes are facilitated by special technologies that improve the efficiency and effectiveness of collaboration: With collaboration software, companies and suppliers can share information in real-time, make decisions together, and solve problems. AI technologies can be used to analyze large amounts of data, predict trends, or identify optimization potentials. Cloud applications enable the shared use of data and the secure exchange of files and information between partners.

For collaborative cooperation to work, constant risk management is essential in addition to the individual steps to solidify supplier relationships. Unexpected problems can always arise – therefore, companies should regularly conduct risk analyses and proactively work on risk strategies to be able to act quickly in case of emergencies.

Risks and challenges in strategic supplier development can include:

• Dependence on key suppliers: The supply chain is particularly vulnerable to disruptions when companies rely solely on one supplier. If this supplier suddenly ceases operations or the quality of their products or services declines, the affected companies lack the option to engage alternative suppliers.
• Additional costs: Meetings, intensive communication, monitoring of performance – it takes time, money, and resources to build viable, long-term partnerships with suppliers.
• Violation of compliance standards: Companies can unintentionally violate ethics and compliance rules through their suppliers, for example, in the areas of environmental protection or labor law. Therefore, it is important to continuously check and evaluate compliance with agreements and supplier performance.
• Faulty, unreliable communication: Clear and effective communication between the parties involved is crucial for strategic supplier development. Otherwise, misunderstandings or errors can quickly arise that negatively affect processes in the supply chain or business relationships.

For successful collaboration, it is therefore important that companies are in constant exchange with their suppliers, coordinate processes, and ensure the necessary transparency in the supply chain so that all parties can work together on solutions.

Strategic supplier development requires a systematic and proactive approach. Ideally, it is a win-win situation: Companies benefit from the reliability as well as the know-how and innovative strength of their suppliers, while suppliers can enhance and optimize their capabilities and processes through collaboration with companies. Monitoring supplier performance is crucial because it allows weaknesses, delivery bottlenecks, or quality losses to be identified early. Through a shared view of individual processes, customers and suppliers can develop and implement measures to improve performance. Ultimately, a trusting exchange between supply chain partners strengthens collaboration and ensures a sustainable relationship even in times of crisis. Therefore, strategic supplier development is always a continuous process that is never complete. It aims for long-term success and helps companies make their supply chain more stable, resilient, and efficient.

For more information on the topic of collaboration, please refer to our 17th Hermes Barometer "Collaboration in the Supply Chain," available for free download.