What Relationships Do You Have With Your Suppliers?

One of the invited presentations at the MPower-hosted BPX exchange last week was Dr. Lloyd Rinehart‘s talk on “Relationship Management Systems for Internal Procurement Strategies“. In his talk, which was very good, Lloyd noted that there are multiple dimensions of corporate relationships today and that each relationship can be classified into one of seven different categories based on the amount of trust, interaction frequency, and commitment in the relationship.

The seven relationship categories that Dr. Rinehart has identified in his research are the following:

Relationship Type Trust Interaction Frequency Commitment Frequency
Non-Strategic Transactions Low Low Low > 15%
Administered Relationships Low High Low < 15%
Contractual Relationships Medium Medium Medium < 20%
Specialty Contract Relationships High Low Low < 10%
Partnerships High Low High > 10%
Joint Ventures Low High High > 10%
Alliances High High High < 20%

If you look closely, you can make a number of important striking observations from Dr. Rinehart’s research on this table alone.

  1. All of the common “relationships” that you encounter can be determined on three simple dimensions.
  2. Even though there are theoretically 27 different classifications one could make using a Low-Medium-High classification across each of the three dimensions, some combinations just don’t happen. For example, if trust is low, the interaction frequency is at one extreme (and high if the relationship is considered important) or the other.
  3. No one relationship type is clearly dominant. In an average organization, all types of relationships will be present and could be present in nearly equally quantities.
  4. The three most common type of relationships are contractual, alliances, and non-strategic transactions — which indicates that, at most companies, products will either be strategic (and strategically sourced through alliances and contractual relationships) or not (and then bought as commodities in transactional spot buys). (The question is, is this a result of sourcing and procurement systems, which tend to focus on one of the extremes, or the reason for their continued development?)

But what’s even more striking is that the best results, from a sourcing perspective, only come from two of the three most common relationship types. Can you guess which two?

And now I’m going to leave you hanging because Dr. Rinehart has agreed to do a couple of guest posts next months on the most effective relationship types and better negotiation practices. Stay tuned!

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