I recently attended a company conference on the topic of Leadership. One of the questions posed on day 1 was regarding the difference between ‘Management’ and ‘Leadership’. There is no right or wrong answer, but the consensus was that management is more about maintaining the status quo, whereas leadership is about breaking new ground through innovation.
It is difficult to find holes in that distinction. Nelson Mandela, Abraham Lincoln and Winston Churchill are not revered for being great managers, they were great leaders.
Where management is tactical, leadership is strategic. If management is trivial, leadership is critical. When management is easy, leadership is difficult. Management maintains value, but leadership creates value.
So in the world of sourcing, procurement and supply chain management, why do we settle for managing suppliers? Why don't we lead suppliers? Moreover, how can we lead suppliers?
Here are a few thoughts to keep in mind to ensure you lead suppliers to generate value for both parties instead of just managing a relationship to the end of the term.
To put it bluntly, suppliers cannot support your creativity and innovation in isolation of your business objectives and drivers. Do not view your supplier relationship as something purely transactional, where transactional is to have the attitude of, "we are paying them 'X' to do 'Y' and need to provide them 'Z' in order for them to do that.”
Give them 'Z,' of course, but give them something extra, in addition. That might be exposure to senior leadership, insight or involvement with your planning process, regular review meetings or perhaps something more innovative. Many companies already hold annual supplier conferences in which they bring together major suppliers to encourage cross-pollination of ideas, but why stop there? Can you invite a core group of suppliers to join your team’s offsite meeting? Or would it be possible to have a supplier spend a week in your office or manufacturing plant working alongside your team?
These kinds of initiatives serve the purpose of increasing collaboration between you and your supplier, showing your willingness to build a long-term relationship and increasing the supplier's knowledge of your business. Even if it isn’t the genesis of a ground-breaking innovation, you can bet it will improve the effectiveness of the relationship overall.
A customer-supplier relationship is a two-way street and can never boil down to you returning year after year to negotiate deeper and deeper discounts. From a purely selfish perspective, it is not good for you, the customer. It adds risk; suppliers are liable to cut corners, to over-promise and to under-deliver. You might just receive a low quality of product or service or, worse, you could see realization of business continuity risks that negatively impact your operations.
But this is not to say that you shouldn't expect to see year-on-year value being delivered from suppliers. Relative to the industry and economic environment, that should be expected. The point is that it will only be realized if you are giving something in return to suppliers. That might be as simple as putting a contract in place to give them some guarantee of custom, to increasing the length of contract or expanding the scope of services, all with the relevant contractual guarantees, of course (see next point).
Slightly less financially tangible, but just as beneficial to the supplier – be a good customer to them. That means you allow them to use your logo and name in marketing collateral, be a willing reference, endorse case studies, accept invites to jointly speak at their industry conference or introduce them to other suppliers or customers, where appropriate.
It is important to clearly define at the outset of a relationship, what the rules of engagement and expectations of service will be. This might sound like it flies in the face of innovation; "you can't plan for innovation,” people might say. But you can put in place the framework to encourage innovation. If the Statement of Work does not compel the supplier to attend regular view meetings, for example, then the likelihood is that they will not attend as often as they would if they were contractually obliged.
Think of it this way: There is a reason why you would have a Quarterly Business Review (QBR) (or any other type of regular review) with a supplier, and that reason is that it serves a positive purpose. So, at the onset of a new engagement, don't take the risk of assuming they won't make excuses to not attend. Make the meeting mandatory. Mandating is not always the answer, but it is acceptable in a B2B environment.
Following this theme, the Service Level Agreements (SLAs) can encourage price efficiency through continuous improvements and can incentivize the supplier through a specified growth plan. Too often, SLAs focus only on the scope of the immediate work, to the detriment of creating a framework for a longer term and more expansive, successful relationship.
Encourage supplier self-management
As you now concentrate on collaborating with the supplier to build a strong relationship that can foster innovation, what happens to the day-to-day management of the account? The answer is that a key element of evolving from ‘Supplier Management’ to ‘Supplier Leadership’ will be for the supplier to manage its own performance.
Self-management is a process in which the supplier measures and reports its performance against SLAs and KPIs and flags when corrective actions are triggered. This progressive initiative will reduce the cost of managing suppliers. With only audits and assessments on the supplier for validation, there is naturally less resource required, and you can put the burden on the supplier to self-reflect and report on their own overall performance.
Managing to lead
Progressive supplier leadership can open doors to new opportunities, drive innovation and assist successful value generation. Just remember these four points:
Embrace your supplier: expose them to your strategic business goals and plans.
Give and you will receive: remember the customer-supplier relationship has to be two-way.
Plan for success: define and embed objectives and expectations from the outset.
Empower the supplier: concentrate on the big picture and leave the supplier to self-manage.
So next time you’re negotiating a contract with a new supplier, bear these four thoughts in mind and lead the supplier to success versus managing for mediocrity.