Aligning the Interests of Buyers and Suppliers
The Counterintuitive Truths of Supply Chain Management
Important ideas get lost in translation when moving from concept stage to real-world execution. LogicSource believes the best way to align buyer and supplier interests is to embrace the counter-intuitive truths of supply chain management. Reconciling all perspectives will help you build and maintain a network where everyone speaks the same language regarding quality and mutual value.
Often, important ideas get lost in translation when moving from concept to real-world execution. For strategic sourcing, many companies forget the “strategic” element when managing sourcing.
It starts with the common mistake of not taking time to understand a supplier’s capabilities and in turn, ensuring suppliers comprehend key business drivers. The fact is, many companies operate their supply chains based on stale relationships. “These guys have been with us a long time,” is a common refrain.
While those suppliers’ capabilities were once aligned with marketplace needs, those needs change and supplier capabilities often fail to keep pace. The truth is, they have accommodated a lot of last-minute changes and fire drills, making it possible for lean client organizations to get their jobs done.
Loyalty is built in both directions and a form of corporate co-dependency emerges, resulting in debilitating dependency that is coupled with pricing significantly above market. “I know they’re more expensive, but we need their service levels to meet our objectives,” is a frequent defense from both line colleagues and their purchasing agents.
The hard truth is these situations rarely work out for suppliers. In striving to keep customers happy and to protect relationships, many – particularly small to mid-sized suppliers – eagerly accept work beyond their capabilities. Convenience trumps common sense, with the more demanding customers taking up a disproportionate amount of capacity.
Then, to add insult to injury, when a cost-cutting initiative comes along and the client is forced to place the spend elsewhere, what was once an accommodating and loyal supplier now faces significant pain, and, in a worst-case scenario, financial hardship.
The best way to align buyer and supplier interests is to embrace the counterintuitive truths of supply chain management:
Collaboration does not require suppliers to run through walls to complete any job.
Collaboration means collective problem solving to the benefit of both parties. For instance, working together to change business processes to both speed time-to-market for the client and to ensure swift payment for the supplier.
Volume is the not the panacea to better pricing.
Yes, volume matters, but if the work is the wrong fit for the supplier, you’re not getting the best price. It’s vital to understand what fits a suppliers’ platform, through knowing their strength and weaknesses.
Turnkey does not mean turning over the keys.
Many people behave as if only one party needs to understand the details. They assume suppliers don’t need to fully comprehend business objectives. “They just need to meet our service level agreements.” In reality, the best relationships are with suppliers who are deeply knowledgeable about your business, and whose capabilities you know as well.
Culture trumps strategy.
Cultural fit of your suppliers is far more important than people often think. Client and supplier cultures don’t need to perfectly mirror each other, but they do need to be complementary. Perfect “capability fit” and cultural misalignment quickly leads to conflict and inefficiency. Consider whether this is a supplier that you want to spend time with, which you can learn from, and whose vision will evolve in concert with your organization’s needs.
Incorporating this thinking into your supply chain management techniques will help you build and maintain a supplier network with the proper competitive tension and the best exchange of value between your enterprise and the external capabilities you need for success.
Tags: Transparency, Strategic Sourcing, Collaboration