Have you ever stopped to think about how important your suppliers are to your business? Do you view suppliers as business partners and an extension of your business, or do you see them as a reactive service provider that exists to fulfill demand?
All too often we tend to treat supplier relationships as contractual agreements rather than mutually beneficial partnerships. This behavior grossly under-estimates the tremendous benefit suppliers can provide to your firm’s day-to-day operations. This “servant” paradigm is not the right way to go about conducting business with suppliers for a number of reasons. Instead, let’s talk about three key reasons why we need a fundamental shift in our thinking away from the supplier “servant” paradigm to suppliers being members of a critical department in your organization – a key business function that adds value for your customers on a daily basis.
Reason # 1: Start with Trust
Relationships with suppliers are like any other business relationship. There are contractual obligations that both parties have to one another and those expectations evolve over time. Certain basic requirements relate to contractual arrangements based on pricing, lead-times, purchase quantities, specifications, quality requirements, compliance, among other factors. Once the contract is signed however, how do things play out? If your supplier delivers products late or if you continually provide suppliers with inaccurate forecasts contributing to the bullwhip effect and never ending changes to specifications, your relationship will lack a foundation of trust. Constantly pressuring your suppliers to meet unrealistic lead times also does not help to build a foundation of trust especially when there is a compound effect on sub-suppliers involved along the supply chain.
A supplier relationship based on trust requires that the parties involved operate in a transparent manner in which the focus is on sharing information and continuous improvement. There is also clear accountability for everyone involved while working collaboratively to tackle tough problems as they arise. One way this type of relationship can be achieved is by providing real-time access to supplier dashboards where key KPIs can be shared and monitored. Including suppliers early on in the design phase of products provides your suppliers with the opportunity to provide suggestions relating to manufacturability, raw material selection, and packaging requirements helps to build trust and naturally fosters accountability, transparency, and collaboration. This approach also provides your organization an opportunity to learn from suppliers and improve their design capabilities for future product development initiatives.
Helping suppliers get access to data that communicates real-time performance also helps suppliers to be proactive to address sources of pain in your organization for supplied products, services, and information that is critical to a mutually beneficial business relationship. When a foundation of trust exists, all parties involved are more willing to go above and beyond to work well together. This ultimately provides opportunities to reduce costs, optimize efficiency, and the focus that is essential to spend more time on creating value for customers rather than micro-managing the supply chain.
Reason # 2: When the Going Gets Tough…You’ll Need a Resilient Supply Chain
At some point in the business partnership, things will get complicated. A company undergoing rapid growth will need its supply base to grow with it. In some cases, this may require significant capital investment from both suppliers and their customers that was not originally planned for. A strong supplier network will help your organization remain flexible and adapt to changing market conditions. You’ll need to help your suppliers in those situations by taking on appropriate levels of risk on their behalf. But at some point, you’re going to have to rely on your suppliers to help fill the gap. Some situations may be related to the discovery of a flaw in the design or materials used in your products. Regardless, you’ll need to work with everyone involved to minimize the impact of these issues on your customer base. The ability to assign tasks and monitor completion, work with relevant stakeholders including suppliers to identify root causes, and execute on corrective action plans are critical in these situations. New industry, statutory, and regulatory requirements may also have a significant impact on your supply base and your organization. Having a system to help manage all of these changing requirements is the key to helping you and your suppliers continue to be successful together. How well you can partner with your suppliers to get through these obstacles along the way will be a testament to the strength and resilience of your supplier network.
Reason # 3: Tackling the Problems of Tomorrow
Just like your company, suppliers need to conduct research and development in order to uncover new ways to create value for customers (companies like yours). They also need to listen to the challenges that their customers face so that they can prioritize which problems to tackle first. Keeping suppliers in the loop on the problems of tomorrow will help you remain competitive as well. Recall what happened when Apple was secretly developing the iPod. Once Apple learned there was a 1.8 inch storage drive in existence that could hold 5 gigabytes of data after a regular supplier meeting with Toshiba, they realized that they had what they needed to dominate the MP3 market. The rest is history. You never know where your next major breakthrough or enabling technology is going to come from. It might be from within your own walls, from your suppliers, or more likely, both. Don’t discount how important your suppliers are for business today and tomorrow at your company. By treating your suppliers as equal partners instead of just a means to an end for your success, you position yourself to take advantage of opportunities for cost savings, problem-solving, innovation, and new market penetration more quickly than the competition.
Giving your suppliers a seat at the table will go a long way to improving the effectiveness of your business relationship. Along the way, you can use a variety of methodologies to support and implement the systems necessary to a collaborative partnership. Incorporating principles and concepts from organizations like APICS (American Production and Inventory Control Society) helps to strengthen supply chains in organizations and become a source of competitive advantage. Manual processes for supplier assessments, qualifications, audits, and handling supplier nonconformances are often incredibly confusing. These processes are a great place to start when it comes to implementing software. Collaborating with your suppliers to standardize routine activities sets the stage for how future business will be conducted. This collaboration also factors in interests, needs, systems, and people from both sides of the table, ultimately laying the foundation of trust necessary to sustained business excellence.
A foundation of trust is based on many deposits from Moments of Truth. Every interaction that you have with your suppliers and your suppliers have with your organization are an opportunity to build trust. When information is withheld, when defective product is delivered, or when invoices are constantly paid late, every one of these interactions helps to strengthen or hinder your relationship with suppliers. Hopefully there are more positive experiences from each Moment of Truth than there are that are negative. Even if the situation is not a good one, such as a major recall or mistake made, it can still turn into a positive Moment of Truth based on how both parties address the problem at hand.
So the next time you think you should strong arm suppliers, really stop and think. The question you should be asking alongside your supplier partners is whether there is a better approach. Can you collaborate to develop and implement better processes, tools, and training to help your organization and your suppliers achieve high levels of performance so everyone wins? Strong companies and supply chains find ways to do so and they’re winning in today’s markets. To learn more about companies that demonstrate exemplary supply chain practices that are sources of competitive advantage, check out Gartner’s Supply Chain Top 25.