Today we continue our coverage of Succeeding in a Dynamic World: Supply Management in the Decade Ahead (a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research), and our review of the seven critical supply strategies for succeeding in a dynamic world in particular, with the second critical supply strategy identified by the report – the ability to develop and manage suppliers.
According to the report, in the decade ahead, the development of a competitive worldwide supply base and suppliers that collaboratively help to create value in support of the buying company’s business models will become the norm. Although the doctor is not sure whether or not it will be the norm across all companies, the doctor is sure that it will definitely become the norm across market leaders. Furthermore, as the report notes, the leaders of the pack will enter into an era characterized by companies looking for ways to strategically leverage key supplier/buyer capabilities for innovation and “enlarging the pie” rather than playing the zero-sum game whereby one company’s gain usually comes at the expense of the other. The importance of strategic partners, both buyers and sellers, will increase.
The report outlined thirteen strategies for working with suppliers. The top six were the following:
- Improve Working Relationships with Strategic Suppliers
- Allocation of Management Attention and Resources to Suppliers
- Grow the Volume of Purchases from Strategic Suppliers
- Require Suppliers to Take a Greater Role in Cost Management
- Employ Joint Evaluation of the Working Relationship
- Collaboratively Share Risks, Rewards, and Cost Savings
In the decade ahead, companies will put greater care into strategically structuring their supply base in order to support the business model and category strategies. Effective cross-functional teams will be employed to structure the supply base and help achieve the overall goals of the business. The supply base will be structured using a “bottom-up”approach that will be applied to each category. The collective supply base identified will contain the right number of suppliers for the company.
The report also provides some good questions to ask on a category-by-category basis when attempting to strategically structure the supply base around strategic categories:
- How many suppliers is right for this category, and what role should each play?
- What current and future capabilities are required, and where in the world should the supplier(s) be located?
- Which suppliers do we want and why?
- Do we want to lead and/or manage supplier networks at the Tier 2 and Tier 3 levels?
- Which suppliers do we want to cross-collaborate with each other, why, and how can we influence this collaboration?
Suppliers will play a greater role in the innovation process and companies that work in industries where technological change is a driving competitive force will opt to work in an “open innovation” environment that celebrates the power of discovery and dedicates significant resources to working on such efforts. In addition, supplier relationship improvement will be a growing need, as suppliers will be increasingly viewed as a source of innovation, which is a change in the traditional western buyer-seller dynamics.
Furthermore, two different approaches to collaboration – “initiative driven” or “institutionalized” – will be employed as circumstances warrant to enhance future working relationships with strategic suppliers. The initiative-driven approach will establish a leadership team that will drive the company to rationalize the supply base, enhance segmentation, and identify preferred or strategic suppliers, improve performance scorecards, create or further develop capability matrices, modify performance driven sourcing behaviors to identify and reward best performers, and implement a company change program focussed on improving working relationships.
Mature strategic suppliers will be moved from the “initiative driven” state to the “institutionalized” state where the goal of the supplier relationship will be focused on improved value creation along multiple dimensions – including innovation, revenue enhancement, and business continuity – and not just cost reduction.
The report also noted that in contrast to today’s quarterly business reviews, stale supplier training programs, and narrow-focused joint improvement efforts, periodic, cross-functional reviews and meetings with key suppliers will be the way of the future.
In summary, in the decade ahead, the supply management function will have to clearly understand company needs and align with the appropriate suppliers, develop close working relationships with suppliers that are strategically important to unlock value-creating potential, and invest in not only reactive, but proactive supplier development efforts to maximize the value achieved by the supply base.