In their 2013 article McKinsey & Company stated that building a mature strategic sourcing practice can boost enterprise value in three ways. The study showed that companies with advanced supplier collaboration capabilities outperformed EBIT growth by nearly 200% over companies who don’t. But financial performance isn’t the only benefit. The study also concluded that mature supplier relationships provide value beyond cost and deliver higher levels of innovation.
By building supplier relationships, companies can fully capture the enterprise value that McKinsey describes. In our experience, we’ve found that there are 3 important investments that companies can make to maximize supplier relationships.
The first investment is time. When you spend time with the supplier – you begin to understand the value they can bring you beyond price. Many suppliers have knowledge and insight that go well beyond your own, because they deal with hundreds or even thousands of companies just like yours. By getting to know your strategic suppliers, you gain access to their market insights. By creating closer relationships, companies can also create a joint view of the future, resulting in more innovation, improved safety, and reduced risk.
Recently we had trouble onboarding a new supplier due to complications over the non-disclosure agreement. Once we took the time to sit with them and explain our respective positions we quickly resolved our differences and began discussing the strategic future.
There is no better way to show a partner that you are committed to the relationship than by investing in their financial success. When you award suppliers additional business, you become more important to them, and they will begin to invest more time in your success. Remember – predictability of revenue is a common objective of many suppliers, and they will often offer price reductions in return for larger, longer contracts. When you become strategic to their business, you’ll also see improved service. Having fewer, more strategic suppliers also means less audits, fewer supplier management resources, and tighter workflows (meaning lower process costs). Strategic partners often work with customers to develop new ways of doing business or deploy innovative technologies in order to advance the relationship.
As an example, we recently invested significant additional business with a top 10 supplier (bringing them into the top 5). One of the most important benefits we experienced was a significant increase in production schedule flexibility in times of peak demand. Because we became more important, they were willing to adjust their schedule to accommodate our needs.
When you take the time to espouse the benefits of a relationship to the rest of the organization, the supplier benefits – but so do you. Suppliers will invest more time and energy in customers they see as strategic, which means they will give you access to their engineers, executives, and innovators. They also will help expand your brand and promote your relationships beyond just the “logo on the website”
After expanding our relationships within one key supplier, we benefitted by receiving a referral from a high-level executive who understood a particular need we were trying to fill. Establishing connection points beyond the traditional buyer – sales rep linkage often results in a shared connection that will benefit both sides in the future.
By aligning your investments in time, additional business, and political capital with your most promising suppliers, you can more effectively achieve the benefits McKinsey predicts will occur through effective supplier collaboration. Cost reduction, value beyond cost, and innovation may be more readily available than you think.
SupplyLogic partners with marketing and procurement leaders to optimize the print and marketing communications supply chain. To learn more about SupplyLogic an our no cost assessment of your supplier relationships, contact us at 1-877-767-5644 or email at firstname.lastname@example.orgBack…