By Source One Management Services
By Brad Carlson, Director, Supplier Relationship Management Practice, Source One Management Services
A hot topic in the industry right now is the notion that through effective Supplier Relationship Management your organization not only has preferred suppliers, but your organization can become a customer of choice or (preferred buyer). What does this mean exactly? Every time I talk with suppliers, I feel like I’m getting best-in-class treatment. Those that did not bring their ‘A-game’ during the strategic sourcing process were likely not selected. But, after the ink hits the paper, the leverage game changes immediately.
There are plenty of examples of where customers have gotten red carpet treatment, but we’re not necessarily the largest customer for that supplier. While suppliers are certainly interested in revenue and likely to give preferential treatment to their largest customers, what other levers can a customer wield to gain such leverage after the contract is long since signed?
Where do I stand?
So, first, how do I know if I have achieved the lofty status of ‘customer of choice’ with my strategic suppliers? Start by looking at your firm through the lens of your supplier. Understand their goals and strategies besides revenue generation. Does you firm offer your supplier a proving ground or business case to further their new product/service?
Also consider how you have treated the supplier in the past. Recall what dominates your conversations. Has it been about pricing and gaining concessions or speeding up delivery or increasing scope but keeping the same costs? Are invoices paid late and accompanied with dispute? If these one-sided conversations are an indicator of the relationship, the logical conclusion is that your supplier views you as a nuisance customer. On the other hand, if you receive preferential treatment over the course of time, in multiple categories, on a consistent basis – read no further, you are a customer of choice!
To create a positive supplier relationship, customers must understand the relationship is both measured rationally and emotionally. The quality of the relationship is determined by not only hard factors, such price, quality and physical availability, but also through the interactions between suppliers and customers.
To move into the customer-of-choice category, three strategies can be employed with great results.
Engage with your suppliers. Buyers may be reluctant to fully engage with suppliers as they want to keep ‘arm’s length”. They might fear that creating close relationship will result in becoming dependent on suppliers. This in turn may lead suppliers to become complacent. While this indeed may be a risk, so is behaving with a non-cooperative, “do-as-I-say” mentality. You will be missing out on key supplier industry insights, all the while your competitors are not.
A 360 survey offers an ideal opportunity to initiate a dialogue with suppliers. It's unusual to give suppliers an opportunity to rate their clients, but a majority of suppliers view this positively. A typical supplier response to this opportunity is something like, "My customer appreciates me, he listens to me and I know that I'm important to him.”
Open the kimono. Customers often fear suppliers taking trade secrets and running to competitors and so are hesitant to reveal strategic intentions. This risk should not go unchecked, however customers that openly discuss the business problems they are facing will invite supplier innovation to meet the challenge. And most important solving that challenge ahead of their competition.
Be easy to do business with. Strive for clarity, consistency, and simplicity in all supplier interactions ranging from invoice payments or procure-to-pay processes, to strategic sourcing and RFP processes to executive level interactions. Constant challenges in statement-of-work development or invoice creation result in unneeded emotional strain, affecting the underlying relationship and future decisions. Even if you are in the business that lends itself to ad hoc requests from your suppliers, by being open about your business strategy and challenges will go much further in getting these ad hoc request completed ahead of your competitors.
Bottom line: Suppliers are only as good as we let them be. It’s time to get out of our own (and their own) way to build a great partnerships with strategic suppliers.
Brad Carlson is the Director of Source One's Supplier Relationship Management (SRM) practice. Brad’s primary focus is development of post-contract partnership and supplier management programs to help clients discover additional cost savings, process improvements, and customer experience benefits. He has helped many clients improve their SRM programs, providing mutual benefits for both the clients and their suppliers. Brad has significant experience not only as a supplier management expert, but also as a strategic sourcing manager — aiding clients through the development and improvements of their category plans and internal strategic sourcing processes.
Source One has been a leading Procurement Service Provider supplementing client resources with cost reduction, strategic sourcing services and spend management solutions since 1992.
Source One's experienced sourcing professionals work closely with clients' in-house staff to reduce spend, optimize existing budgets and increase the efficiency of operations by using proven sourcing and purchasing strategies, best practices, innovative technologies, and an unsurpassed database of market intelligence to help clients achieve the maximum level of savings possible. Ongoing monitoring and monthly audit processes further ensure that savings remain competitive and sustainable.
The Source One process develops a secure and responsive supply base that is capable of providing quality, delivery, costs, technologies, flexibility and services to meet the current and future business needs. Source One has strategic sourcing and cost reduction solutions for businesses of all sizes, from the small to the mid-market and including the Fortune 500. More on the web at www.SourceOneInc.com
George E. Krauter
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