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Relationships with Suppliers

The supplier relationship is important not only because it has impact than on the customer relationship, but because it can affect the very competitiveness of a business. Ten years ago we assessed the quality of relationships a US computer manufacturer had with its global chip and other suppliers. This company realized that a good relationship with chip suppliers would help it compete in time if it received early access to the suppliers' plans and latest products, which the company considered more important even than chip prices. This company went on to formulate relationship management plans for its key suppliers. Rather than grind suppliers for lower and lower prices, companies would do better to collaborate in the best interests of themselves and the end-customer. It may involve working together to reduce prices. It may involve much more. How is a company to do this? Some suggestions follow:

  1. Just as you have a database on your customers and their interactions with your business, have one on your suppliers and their performance;
  2. Discriminate among your suppliers for the strategic and financial value they represent now and in the future. Which are the most important suppliers? How do the important suppliers compare with one another? Benchmark them.
  3. Determine how these suppliers are presently bonded with you. What bonding do you want to achieve with them? Is the bonding to be achieved throughout the value chain or only in certain areas, such as design and development? Are suppliers amenable to the bonding you want? Ask them. Do they want the relationship with you as much as you do with them? You cannot force relationships upon companies that do not want them. If this is the case, move on.
  4. Describe the opportunity available to both you and your important suppliers if you both achieve the bonding level mentioned. How will you both benefit from a more collaborative association and possibly tighter integration?
  5. Establish a plan to which you and your important suppliers commit so that you can work together in the planning, implementation, management, measurement and sharing of new value you will both create.
  6. Determine how the relationship is to be governed.

Deeper bonding will probably require many changes to the way you and your suppliers now do business. For example, do they really need a sales team to focus on your account? Do you need purchasing agents to place orders with them? Or would you both be better off to have an account team, with sales, purchasing and other members from their company and yours, working together in the end-customers' interests?

For any changes to really take root, senior management in both companies will obviously need to commit to the vision. They will need to trust one another at several levels - personally, companies and processes, so the boundaries of their companies can be blurred. If they can tell where one company ends and the other begins, the relationship is not yet total.

One way of deciding how best to go forward together is to have a forum to explore the relationship and plan to improve it for mutual benefit. Invite senior management from your company and the supplier to attend, as well as selected, informed customers to provide context and a touchstone. Consider using an external facilitator.

If this forum works as planned, it should yield, for example:

Supplier relationships depend on mutual dependency well executed. Future success deepens this through new, mutual value creation.