In his book ‘The Selfish Gene’, Richard Dawkins says a gene (or a bit of our chromosome) will do everything it can to survive for millions of years, even if it means at the expense of other genes. But there is no gene that single-handedly builds the body or makes it function successfully. They need to rely on other genes, collaborate with them and work together to make the host body work and survive to pass down the genes. They collaborate with other genes in complex ways to ensure their survival.
Much like how organizations around the world work to survive. Organizations cannot achieve their strategic objectives and continue generating profit every quarter and year all by themselves. They need other entities who can support them. If these other entities are partners who can work with them, and also share the goals – the end result can be vastly different than someone who gets a job done at a certain (not always) agreed price.
Companies like Toyota and Chrysler have mastered the art of collaboration to reap significant cost benefits and establish a competitive advantage for themselves. The secret is to stop managing the suppliers, and start collaborating with them – much like the selfish genes.
However, supplier collaboration is not an easy concept to implement. At the heart of it, the supplier might not want the relation due to inherent negatives – additional customer specific investment into people and resources, transfer of people from core jobs to customer specific ones, price negotiation aimed at profitability than mutual benefit, lack of trust concerning intellectual property, particularly the ones that are not clearly under contract/IP laws, increased coordination and reporting, different priorities that affect project timelines, geographical and cultural separation, and the perception that the customer is ‘controlling’ than ‘collaborating’.
The positives on the other hand are that the companies complement each other’s strengths, reduce overall cost and improve the speed to market of their ideas. Not a very long list, right?
Wrong. Supplier collaboration allows companies to derive significant competitive advantages with far reaching consequences.
Revenue generated by reaching the market early and cornering a share of the market beats any cost savings that are achieved purely from strategic sourcing and other cost reduction exercises
Collaborative design not just reduces time spent on to and fro communication during the design, but it also ensures faster prototyping and the chance for the first prototype to be closer to the desired objective than if developed in conventional means, and typically of better quality as well
Trust based, free and open communication and exchange of ideas that one of the partners in the relation can utilize
Higher risk appetite and better preparedness
Let’s look at some practical things that can be done without significant effort yet yield good dividends:
Start with a robust and objective 360-degree performance evaluation process. Ensure to avoid the mistake of focusing on the process, it is the feedback and follow up actions that matter.
Identify suppliers who are ideal candidates for partnership
Classify suppliers by spend, criticality and part of the supply chain.
While most companies prefer to be a large fish in a small pond, size of the supplier’s business should definitely not have a higher weightage than their capability to perform their core business.
Identify suppliers that count as strengths to the company (for example: strong financials, strong logistical capabilities, good market standing and reputation, people and process focus)
Weed out suppliers that count as weaknesses (for example: non-committal, poor financial performance, poor risk sharing/ preparation/ management)
Extra points to suppliers with similar operating model and culture, same region, complementary industry
If you are in the manufacturing industry, extra points also for strong R&D capability, GMP and appropriate certifications
Evaluate value gained by the supplier because of partnering with your organization
Establish mutually agreed objectives and goals for the partnership.
Create project and relationship management teams and clear bi-directional reporting mechanism
Enroll the support and frequent participation of senior management and leadership teams
None of this guarantees suppliers will want to enter the partnership, however here are some reasons why they should consider.
In the end, it is all about ROI – if the supplier can get a better ROI, they will be more than happy to invest more into the relationship. This can be achieved through sharing of gains, permission to utilize their expertise for other clients (limit to other industries first to ensure competitive advantage is not lost), long term partnership model that provides a confirmed source of revenue for the supplier, etc.
Relationship at an executive level – this makes the supplier feel they are being treated as equal, as partners, and more importantly sends the right message that the company is in the game with the supplier as a partner
The relationship should evoke trust – that the organization will not bail when the supplier is going through a rough patch
Proactive and constructive feedback that flows both ways
Recognition where it deserves – provide references, speak about the relationship at forums, recognize the value with an award at a summit
Meeting them face to face, as often as can be permitted. Surprisingly, most companies still treat suppliers as the sales representative they speak to
Partner across supply chain - co-branding, co-marketing, sharing of distribution channels and warehouses
Supplier collaboration has a benefits for all companies involved. Toyota and Chrysler are but a few well-known and easy to relate examples. A strong due diligence process to select suppliers worth partnering, supported by empowered group of people and processes can help companies start partnering and reap the benefits of collaboration. The key to success is to invest in identifying the right relations and managing the relation itself.
Please join GEP and Honda at the 2014 Global Executive Summit in Denver, CO when they present,
"The Joy of Buying": Honda's Journey to Establish a Procurement Business Partner
As the procurement industry leaders continue to weigh Business Process Outsourcing (BPO) versus Insourcing, Honda challenged conventional thought in an effort to bring the best overall value and fit to their organization. Soichiro Honda founded his globally respected company in 1948 based on three guiding principles: the Joy of Selling, the Joy of Producing and the Joy of Buying. To maintain its unique corporate principle of the Joy of Buying while evolving the organization to have a Strategic Category management philosophy, Honda Leadership looked to find a partner that would effectively integrate into its team.