Set and forget. Maybe this approach works with your home electricity account or perhaps your quarterly utilities bill. Where set and forget can never be used is in the management of your supply base – particularly your most important 10 to 20 suppliers.
These are the organisations than underpin what you do. Without clients you’d have no income, without suppliers you’d have nothing to sell. So I’d venture that your top suppliers are as important as your clients. Now there’s an interesting thought.
It’s from these companies that innovation and competitive edge sprouts. It’s this activity that allows you to out-compete your competitors, create new products, enter new markets and attract new customers.
Innovation is the exploration of possibility. The sharing of knowledge. A sure fire way of dampening this creativity and lateral think is to have a procurement function that uses a ‘big stick’ as a management tool. Such a team can be driven by price, bound up in process and lacking foresight to see the future potential from change.
I’m continually surprised that this pre-historic way of working still persists today. In fact, in some industries it’s alive and well.
Let me be direct, if you want your business to survive the long term then partnership and collaboration with your key suppliers will be required.
Paul Kelly’s lyrics are right “From little things big things grow”. Momentum starts from simple origins. Openness leads to trust, trust produces partnership, which is then followed by collaboration, innovation, creation and profit.
Working with Suppliers
You need to draw the most out your supply partners. Here are five practical yet infrequently used techniques for procurement to improve supply partnerships:
1. Business between equals
Change your language. Refer to key suppliers as ‘partners’ not ‘vendors’, this creates a tone of equality. Let’s not confuse things. They are your supplier, you are their client. They have detailed knowledge of their goods and services and you understand your operations inside out. These are different yet complementary roles. Avoid the temptation to feel that just because you are buying, that makes you superior. Both sides of the transaction are equal, you pay an agreed fee, they supply the required goods and services. Because of the equality in the exchange, you would do well to treat your supply partners as equals too.
2. Exchange of personnel
Innovation takes flight when both sides of the exchange clearly understand each other. In some instances, this can be enabled through a staff exchange or embedding one of their team in your business. Remember – the end goal is improvement (whatever that may look like) so be prepared to try different approaches.
3. Visit them
Procurement regularly has suppliers visit them. Make no mistake, at worst there is a power play, at best there is indifference in recognising the value of visiting suppliers. Whether it be goods or services, the simple act of visiting your suppliers demonstrates an interest and commitment, increasing success prospects before work even begins.
You want your business to be profitable, the same is true for your suppliers. I highly doubt that your business would find a partnership attractive if your customers were more interested in squeezing you for every drop of savings, rather than letting you be profitable (reasonably, not exorbitantly). Profitability gives you sufficient funds to invest and experiment with new technology and ways of working, that in turn can then be passed on to your clients.
5. Reward, don’t just penalise
Too many contracts aim to penalise for non-performance yet fail to adequately recognise outstanding service and quality. Some may believe that superior quality should be a given and therefore no recognition is warranted. While you’re not going to remain in business with a consistently underperforming supplier, it’s important to remember the human element at play. We all value reward and recognition to some degree. An agreement that only focuses on penalties is one-sided and uninspiring to work under. Innovation requires creativity and expansive thinking, something that and can be easily snuffed out in these conditions. Just remember, reward can take varying forms. Like innovation itself, think laterally around what this could look like for you.
Procurement is in the hot seat to help. It is the gate keeper of suppliers and rapport. Fill this team with the right minded people and empower them for change and watch the change begin.
- What opinion does your business hold about suppliers?
- Consider how your company manages its top 10 supplier.
- How could your business improve supplier performance?