Jonathan Webb outlines the five key factors in driving competitive advantage from your suppliers
Strategic supplier management (SRM) is one of the most important means to drive competitive advantage for modern multi-national corporations. The ability to extract the best from key partners is just as important as getting the best from employees. This article looks at some of the ways in which buyers can increase their effectiveness in managing critical suppliers. For many organisations, SRM is considered more as a ‘tool’, that is, a means to reactively manage critical suppliers. Here, SRM should look at the whole supply base and strategic suppliers to be considered as a part of the whole. Here are five ways to improve SRM.
Consider their view of you
One of the most frequently overlooked aspects of strategic SRM is the suppliers’ view of the buying organisation. Often it is the case that buyers unilaterally declare their largest suppliers by spend as strategic. Unfortunately, spend does not necessarily create a strategic supplier. It could be a bottleneck supplier who may be a larger and more powerful entity (if this is the case, these can be considered gorillas, and subject to an entirely different strategy).
Where there is an investment by the supplier organisation into the buyer, then we must explore whether there is a positive feeling. Academics often call this 'goodwill trust', which describes a relationship where the view of the supplier towards the buyer has emerged into a more symbiotic connection in which the supplier possess overlapping interests with the buying company. Where this is absent, it is unlikely that the relationship will amount to much beyond that which is contracted.
Communication style
There are two aspects to consider in communicating with strategic suppliers. Firstly, the purpose of such relationships is to build an effective, long-term relationship. As such, buyers must communicate with the suppliers on the basis of an equal partnership. Threats, aggression and negotiation stunts will likely undermine the degree of suppliers’ trust into the relationship. Consider, rather, the suppliers, as an extension of the internal organisation and therefore subject to the professional respect afforded to co-workers.
Secondly, consider the cadence of the relationship. I know of at least one leading company that encourages its buyers to have at least one or two informal coffees with their key contacts in strategic suppliers. This fosters a more informal working relationship between two individuals and within that informality greater trust is forged. But the increased touch points also maximise the possibility for knowledge sharing from both parties, providing the suppliers with more insight into future product roadmaps, but also equipping the buyer with a greater appreciation of the suppliers’ capabilities.
Bring in the business
Strategic suppliers, where they are genuinely strategic, should be a matter for cross-functional concern. As such, buyers should look to bring in their stakeholder and involve them directly in managing the partnership. Companies should invite relevant personnel into supplier meetings to discuss performance, opportunities and the future.
This also provides clear evidence of procurement's value and direct relevance to the business. By demonstrating that the function is intimately connected to innovative third parties, it is more likely for it to be invited to key meetings elsewhere in the organisation. This greater foresight further compounds buyers' knowledge of business requirements and can better orientate SRM in the future.
Foster the right behaviours
Most of the discussion so far has centred on buyers’ activities, but where a supplier is genuinely strategic, companies should also consider ensuring that the supplier behaves in a way that is amenable to the creation of a productive relationship. This speaks to the previous issue of the suppliers’ view of the buyer. This perspective is in part gleaned through its behaviour. Opportunistic activities, slow delivery or even the presence of its B team may indicate that the supplier is not sufficiently invested in the relationship.
Get the most out of strategic suppliers
Strategic suppliers are not like conventional vendors. They cannot be managed on mass in e-auctions systems or subject to blanket demands for price reductions. They are intense bilateral relationships requiring time and trust. As such, the requisite buyer investment into the relationships should be reciprocated with a diverse array of supplier benefits. These can be expressed in terms of product innovation, risk reduction projects and even re-engineering supply systems; all these can be outputs for successful SRM.
In sum, these five activities can better ensure that strategic supplier relationships are more likely to prosper. These special forms of third-party relationship are an excellent means to bring in innovation and value to internal stakeholders, but unless buyers manage these relationships in a methodical fashion, such investments may be wasted.
This article was originally published in the Marine Trader, IMPA’s official journal for maritime procurement and supply chain management, in issue 07 of 2018. Head over to www.impa.net to find out more or simply read new issues on the go with the MT Journal app.
