The relationship between subcontractors and material suppliers occupies a critical place in project dynamics. These relationships range from purely transactional interactions to true strategic partnerships. For subs, it pays to understand the difference between the two, identify where you fall among your supplier relationships, and make the effort to foster true partnerships with your best suppliers.
At Billd’s recent Subcontractor Meetup, we asked a supplier and a subcontractor to share their perspectives on relationship building in construction. In this article, we’ll dive into the insights shared during the Meetup, focusing on what makes relationships transactional, and why fostering partnerships can be a game-changer for your projects and profit margins.
Table of Contents
What Defines a Transactional Relationship?
Transactional relationships are predominantly built on individual exchanges, with little concern for long-term outlooks or collaboration. In this model, the relationships:
- Focus on Individual Purchases: Each order is treated as a separate transaction, without consideration for future needs or market trends.
- Have Limited Communication: Interaction is usually restricted to placing orders and addressing immediate issues. Both parties keep their cards close to their chest, sharing only what’s necessary to complete the transaction.
- Include Price-Driven Decision Making: The primary factor in whether you work with a specific supplier might be based on whether you can get the lowest price for each specific order.
- Are Based On Short-Term Outlook: There’s little to no strategic planning or forecasting involved.
- Entail Reactive Problem-Solving: Issues are addressed as they arise, often leading to rushed solutions and potential disruptions. There’s minimal proactivity.
- Lack Loyalty: Subcontractors may frequently switch suppliers based on price or immediate availability.
While transactional relationships can seem straightforward and cost-effective in the short term, they often lead to missed opportunities and increased risk in the long run.
On the other hand, it should be noted that transactional relationships can be more affordable. If a supplier doesn’t need to provide additional value in the form of being consultative or providing higher touch logistics, the price of goods can be driven down.
What Defines a Strategic Partnership?
By contrast, strategic partnerships involve a more holistic, collaborative approach. These relationships are based on:
- A Long-Term Outlook: Both parties invest in the relationship with an eye towards future growth and mutual success.
- Open, Frequent Communication: Regular dialogue extends beyond immediate needs to include sharing market insights, industry trends, and strategic planning for upcoming projects.
- Collaborative Problem-Solving: Challenges are tackled together, leveraging the combined expertise and resources of both supplier and sub.
- A Focus on Mutual Success: The relationship is viewed as a partnership where both parties’ success is intertwined.
- Flexibility and Willingness to Adapt: Both parties show a readiness to adjust their processes or offerings to better serve the partnership.
- Trust and Reliability: A foundation of trust is built over time, leading to increased reliability and preferential treatment.
The Benefits of Strategic Partnerships
Making the effort to build a strategic partnership will pay dividends for your business in the long run. In addition to creating a better relationship between sub and supplier, strategic partnerships can enhance supply chain reliability, allowing you to become a more reliable sub to the GC as a result. It should come as no surprise that strong supplier relationships give subcontractors a competitive advantage in bidding and project execution.
Long-term partners could also receive preferential treatment, including better pricing, payment terms, discounts, or priority in tight supply situations. Subcontractors also can gain access to the supplier’s valuable expertise, as they offer advice on product selection and application, while the sub can collaborate with the supplier by forecasting their current and future project needs.
And last but not least, these partnerships contribute to risk mitigation, as better information sharing and collaborative planning help identify and address potential issues before they become critical.
To be fair, there are drawbacks to strategic partnerships as well. They are inherently time-consuming, which could degrade the ROI of the partnership. You will have some relationships that simply don’t need to be “strategic,” because they’re too straightforward to require such collaboration.
The Power of Understanding ‘Why’
A crucial aspect of building strategic partnerships is understanding the motivations and constraints of your suppliers. You can uncover the “why” behind their actions and decisions by:
- Engaging in Open Dialogue: Initiate conversations with your suppliers to understand their business goals, challenges, and what drives them. Ask questions about their long-term objectives and how they see your partnership fitting into their plans.
- Understanding Economic and Relational Motives: Sure, suppliers are often motivated by economic gains, but the satisfaction of a truly collaborative relationship and learning opportunities can be equally important. Communicate that you’re committed to a long-term partnership and involve suppliers in future business plans to enhance their motivation to collaborate effectively. Most importantly, recognize their contributions to reinforce their sense of purpose and mastery over their work.
Stay Curious About Industry Developments
In the rapidly evolving construction industry, it’s vital to stay informed about new developments that could impact your partnerships. These include:
- Being open to new solutions that could improve project outcomes for both of you
- Being aware of emerging sustainability requirements that might influence material choices and supplier selection
- Staying up-to-date on new regulations that could impact material sourcing, pricing, or availability
While transactional relationships may seem simpler in the short term, the benefits of developing true strategic partnerships with key suppliers are worth the time and effort it takes to build a strong bond. By investing in these deeper relationships, subcontractors can improve their operations, better navigate industry challenges, and position themselves for long-term growth.
As the construction industry continues to evolve, those who master the art of building and maintaining strong supplier partnerships will be best positioned to thrive in this increasingly competitive landscape.
To learn more about how to create stronger partnerships, watch the Meetup on demand billd.com/webinar/the-truth-about-subcontractor-supplier-relationships/
