As summarised in my previous blog here, building a very strong partnership with your suppliers is one of the key steps towards being a resilient organisation. In this blog, I will try to detail some of the steps one can take towards building a mutually beneficial partnership with suppliers.
Procurement is reliant on suppliers. You can run a procurement organisation without people, process or even technology - albeit not well, but you cannot run a procurement organisation without suppliers. As such, I consider suppliers to be a founding stone for procurement - if procurement were, say, a building.
With the changes and volatility that we are experiencing in the market in recent weeks, it is now more than ever imperative to build an ecosystem where transparency is the key in the relationship with your suppliers; supplier, contracts, category management and even sourcing is no longer about driving savings, efficiency, quality alone. It is also how you inculcate a relationship with your supplier to deliver strategic business value to the business.
Such partnerships have evolved in recent times - companies are increasingly working with their partners to provide cross-functional capabilities within their product ranges. Co-creations from suppliers, suppliers acting as a sales engine, suppliers that fulfill a gap in a product line etc. to name a few are more common now than they were before!
A recent survey from McKinsey in fact goes on to show how companies with advanced supplier collaboration capabilities tend to outperform their peers with 196% EBIDTA percentage growth in company scores of supplier development and innovation.
More than a decade ago, I worked as a category manager for a FMCG company for several categories. It was a great experience...as I quickly began to understand the various commercial structures this company put in place with its suppliers - some of the commercial value sharing models even had co-funded pools where co-development was one of the deliverables that the supplier took on. However, one of the key things in order for such programs to be a success is to develop a process with a structured approach and governance that defined joint objectives, a business case that was beneficial and compelling to both parties, clear and well defined commercials/sharing mechanism with detailed roles and responsibilities, and finally alignment of the incentives of all teams concerned.
Building a strong partnership with your suppliers needs an engaged approach to your relationship with them - this could be fuelled further with the right performance management structures such as a 360 degree feedback mechanism wherein not only are you rating your suppliers but they are rating you too. And such programs work only if the feedback is documented, received correctly, acted upon and done on a regular basis.
For any procurement organisation that is looking to grow into a world class procurement organisation, supplier management, collaboration and engagement is a must-have toolkit. When you have achieved a desired level of optimisation and have perfected your negotiation strategies to obtain maximum benefits, any further growth and progress of the organisation will need to have a new approach to collaborating with your suppliers.
I will leave you with 3 key points to building strong partnerships with your suppliers:
1. Invest in a supplier relationship management program to ensure sustainability over time. Ensure you have the right resources, objectives, infrastructure and methodology to run this program.
2. The best way to begin as always is by getting a better visibility into your spend and then use this information to identify those suppliers that could significant value to your business in order to nurture these relationships.
3. Ensure all communications with suppliers are clear, transparent, consistent and easy to access and keep track of by both you and the supplier.
In case you are looking for more guidance or even a place to start with respect to supplier management, Corcentric's Advisory practice team can help you and orient you on how to carry out the steps outlined above.