No company is an island. To thrive, every organization needs smart workers, loyal customers and, increasingly, great relationships with suppliers. Yet according to a recent survey of 50 U.S. and international companies reported by Supply & Demand Chain Executive, nine out of 10 companies report troubles with their suppliers.
Of the organizations reporting hassles, 58 percent found it difficult to hold suppliers accountable for their actions, 49 percent believed they employed too many vendor managers and 45 percent couldn’t get vendor performance measures in sync with operating agreements. With careful planning, clear agreements and adoption of a new way of interacting with vendors, such troubles can be avoided.
“For the longest time, we felt that, as the buyer, we were the big gorilla in the room,” says Grace L. Duffy, a former senior manager at a Fortune 500 company. “We felt we could demand whatever we wanted.”
Duffy, vice president and Certified Quality Manager at the American Society for Quality (ASQ), says that’s the wrong approach. She and other experts increasingly agree the best way to get the most out of suppliers is to treat them as equals. That means listening, valuing their expertise and creating an environment in which suppliers share in the long-term success of the company.
Adopting this softer approach doesn’t mean abandoning performance- related measurement tools or negotiating unprofitable agreements. Rather, it recognizes that suppliers can offer companies value-added knowledge and expertise that will likely go untapped if they are treated as second-class partners.
“What you want in a supplier relationship is a long-term understanding of each other’s goals and expectations,” Duffy says. “You want to be able to change something at the last minute and know the supplier will help you, because they can count on your business in the future.”
From Blind Dates to Marriage
In his book Supplier Management Handbook, James L. Bossert compares company-supplier relationships to romantic relationships. He compares first meetings to blind dates, initial contracts to dating, first contracts to going steady and long-term contracts to marriage.
“The honeymoon phase occurs when everything is rosy between the customer and the supplier,” Bossert writes. “Once the honeymoon is over, the true partnership begins. This is when both parties work toward mutual benefits.”
To decrease the chances of company-supplier “divorces,” experts recommend the following:
- Do your homework. Before hiring a supplier, spend the time and energy to make sure the relationship will work. Conduct due diligence. Ask tough but fair questions. Examine whether the supplier is a good relational fit with your firm.
- Outline a relationship plan. This is a document that clearly states what the goals will be for the supplier-company relationship. It includes costs of services or products, delivery dates, quality standards and other technical details.
- Form a relationship management team. This team of leaders from both the supplier and company should include key decision-makers, such as engineers, designers and quality managers. The team should meet frequently and be prepared to resolve issues. Before beginning to work with a new contractor, prepare a governance plan for issue resolution and the steps you will take if issues escalate.
- Establish measurement tools. Prepare these tools jointly; don’t invent the performance markers internally and impose them on suppliers. Listen to suppliers’ ideas about how to measure quality, on-time delivery, price and other necessary items.
- Review continuously. When things are going well, it’s tempting to put a relationship on autopilot. Don’t do it. Plan to check in with suppliers quarterly or semiannually. If market conditions change, start negotiating a new agreement with the supplier.
Building a Partnership
If your approach isn’t dictatorial and the supplier feels like part of your team, you can tap the supplier’s expertise. Ricardo R. Fernandez, author of Total Quality in Purchasing and Supplier Management, has seen it happen. In his book, Fernandez employs a hypothetical example to illustrate his point. A car manufacturer plans a redesign of a top-selling automobile. When creating a new look for the car’s interior, the company can ignore its dashboard supplier and allow its engineers to create anything they please. Or it can include the dashboard supplier in the discussions to take into account factors such as manufacturing feasibility and cost.
Businesses are often uneasy about sharing customer information and demand data with suppliers. In the competitive world of manufacturing, many are afraid a supplier might use such detailed analysis to create a similar product.
“Sharing is risky,” says Douglas Kelly, editor of AIPCS magazine, published by the Association for Operations Managers. “The supplier could enter the market.”
But not trusting your supplier has its own risks. Without supplier input, complex products may not be tested sufficiently, and design flaws may not be uncovered in time. Also, if a product becomes popular and orders increase beyond expectations, a surly supplier might resist stepping up production on short notice.
One way to encourage supplier loyalty is to offer valued vendors long-term contracts. Instead of the usual one-or two-year agreement, Jerry Mairani of Sacramento Quality in Sacramento, California, recommends five or 10-year contracts.
“It helps take the burden off of suppliers,” says Mairani, past president of ASQ. “With a long-term deal, they’ll be able to help you on pricing without feeling they have a hammer hanging over their heads.”
Such contracts should include clauses that allow changes because of marketplace conditions and major events at a company, such as the death of one of the principals.
While Mairani believes in developing close relationships with suppliers, he cautions against overlooking obvious shortfalls or allowing kinship to obscure good judgment.
“It’s still a business arrangement,” he says. IBI