Choosing Suppliers

Why trust between suppliers and buyers has never been so important

5 min read

08 November 2018

The collapse of US retailer Sears serves as a brutal reminder of what happens when supplier-buyer relations break down.

A few weeks ago, Sears, once America’s most iconic retailer, filed for Chapter 11 bankruptcy. The company, which survived two world wars and the Great Depression, suffered a 50% drop in sales since 2014.

Rumours of its poor financial situation began to circulate after it missed payments to suppliers last year. Ever since, a number of suppliers have been cutting back on shipments to stores. In a two week period, some 200 have stopped shipping goods to its stores.

This includes transportation and logistics providers, to which Sears reportedly owes $16.7 million – $15.8 million of this is due in the next 30 days. These suppliers, which are vital to the company’s operations, are amongst those that sent termination letters and threatened to discontinue their services.

The damage is clear to see. In recent weeks, images and videos have been doing the rounds on social media which show a lack of stock on shelves. Clear evidence of the power suppliers have in the supply chain.

Sears should be a lesson for buyers and suppliers

The demise of Sears shows the importance of trust between suppliers and buyers. When times are tough, companies need the support of their suppliers to help turn the ship around.

The best way to make suppliers happy is to treat them fairly from day one. While buyers may hold the purse strings, they are nothing without the products and services provided by suppliers. Supplier happiness is vital to buyer success.

“The most important thing for suppliers is certainty around their payments. Suppliers need to know that they will be paid promptly, without chasing their buyer and without having to resort to expensive financing.”

Unfortunately, many large buyers have traditionally been slow payers due to long, time-consuming manual processes. This is to the detriment of their relationship with their suppliers.

So here are some aspects that buyers can work on if they want to ensure smooth operations with their suppliers:

Paying suppliers on time

However, this also presents an opportunity for a buyer serious about improving its speed of invoice payment. In fact, paying suppliers instantly can become a competitive advantage.

“Providing existing suppliers with certainty that, provided their invoice does not contain mistakes, it will be paid consistently quickly helps to build a solid basis for a supplier-buyer relationship.”

It demonstrates that the buyer understands the pressures on their supplier and wants to build a relationship which is mutually beneficial.

Setting the stage this way means that, if things should get tough for the buyer in future years, suppliers are far more likely to stick by them as they look to right the ship. This approach might have bought Sears more leeway with their suppliers.

“Paying instantly can not only strengthen your existing supplier relationships, however, it can also help forge new ones. Reputations spread and all suppliers want to work with the best buyers in their industry.”

Become the ‘buyer of choice’

Becoming the ‘buyer of choice’ can be a significant advantage in many industries. Buyers can leverage their goodwill secure the best suppliers. In technical industries, this can mean that the buyer has access to components or innovations which give its products meaningful advantages over the competition.

For many buyers, paying instantly might sound like a pipe-dream. Indeed, achieving it by reforming payment processes would be entirely impractical.

However, in 2018, we now have the tools which can get suppliers of all sizes paid instantly. Smart technology can predict the few invoices that are unlikely to get paid, so that the rest can be paid instantly.

By paying suppliers instantly, buyers can build strong relationships and create loyalty. This will help prevent firms getting into situations similar to that of Sears.