Daily Archives: November 15, 2013

The Most Important Word In Supplier Relationship Management Is Not What You Think It Is

Today’s guest post is from Joe Payne, Vice President of Professional Services at Source One Management Services, LLC. Joe co-wrote the book on Managing Indirect Spend:
Enhancing Profitability through Strategic Sourcing.

It may be an old story, but it is still an important story in any discussion of Supplier Relationship Management (SRM). According to Business Insider, with about six weeks to go before the launch of the iPhone in 2007, an angry Steve Jobs pulled his senior team into an impromptu meeting on a Monday morning. His plastic-screen’d iPhone prototype was scratched, and he demanded a glass screen be fitted to the iPhone. Specifically, he is quoted as saying “I want a glass screen. And I want it perfect in six weeks“.

If you read the Walter Isaacson biography on Jobs, you can imagine a few other words were in those two sentences. But that is not critical to this story.

Here is the important part. Once Apple and Corning perfected the art of cutting glass so intricately on a massive scale, they had two weeks to get the new glass faces on the phones. Their assembler, Foxconn, woke its employees when the first glass shipments arrived in the middle of the night, and arranged for production to run non-stop.
Not every supplier is going to wake its staff in the middle of the night to cater to your needs, but when you maintain a close relationship with them, and firmly establish the ways in which each party is critical to the other’s success, then the proverbial (and in Apple’s case, actual) doors open. This is the critical takeaway from any talk on Supplier Relationship Management: those in-depth relationships with your suppliers can lead to competitive advantages ranging from moving up in that supplier’s priority list to getting first dibs on their innovative practices and products.

The importance of Supplier Relationship Management is not lost on sourcing professionals and the industry at large, but the most important aspect of SRM seems to have been lost; or if not lost, then effectively drowned out by savvy marketers. A Googling of “Supplier Relationship Management” produces more than eight million results, but the first page is dominated by companies selling SRM software. When I googled, seven of the first page’s organic results, and all of the ad space, are dedicated to software solutions. While “Management” is an important aspect of “Supplier Relationship Management”, and having a clear view of your organization’s entire supplier pool is critical to effectively working with them, the value of SRM comes from the “Relationship” portion. Worded another way, no supplier has ever given a customer exclusive access to a new product because that customer put them in a database!

I should probably stop here to note that SRM software is a great way to manage all of your suppliers, and relatively easy to implement across all of them. Relationship-building, by comparison, is an impractical across-the-board practice returning minimal results for maximized efforts for all suppliers outside those producing critical, hard-to-obtain, or otherwise-important materials for your organization.

That said, “Relationship” is the critical term of SRM when dealing with critical suppliers. Period. Supplier relationship software allows you to track purchases, organize data, and better understanding of your organization’s demand for a supplier’s goods — all of which are tactical, short-term measures. Building relationships, on the other hand, is crucial for your organization’s critical suppliers, as it allows you to talk frankly with them and develop the long-term strategies necessary for mutual success. And it provides critical benefits.

So what are those critical benefits? For starters,

Preferential Access to the Supplier — Much like Apple was able to rouse Foxconn’s employees in the dead of night for glass screens, a thoroughly developed relationship with a supplier can gain your organization preferential access to them. The benefits of a healthy relationship can be leveraged to obtain priority access to product capacity, better pricing, and, depending on the supplier and product or service needed, access to the supplier’s best people.

Supply Chain Stability — With a relationship developed between your organization and a supplier, it is possible to talk frankly about their risks. Weather and disaster vulnerability, political events, logistics concerns — anything that could potentially impact the supply of their products to your organization. Additionally, these discussions allow you to get a better understanding of the supplier’s supply chain and the potential hiccups within it. Most importantly, these discussions provide the foundation for your organization and a critical supplier to jointly develop solutions to potential problems, ensuring that a mutually beneficial solution is reached in the creation of a better understanding between the two organizations.

Input Into Innovation — Another area where Apple capitalizes on its strong supplier relationships is in the joint innovation of new technologies, strategies, or processes. The company routinely puts out the cash to fuel a supplier’s development of an improved or revolutionary product or process in exchange for exclusivity. Recent examples include the company’s lockdown of capacitive touch screens following the iPhone’s launch and their joint development of the highly precise lasers used to perforate the aluminum MacBook frames to allow for hidden status lights. Even if your organization lacks the capital to fund supplier improvements, enhanced relationships can still get your organization input into a supplier’s next product, leading to design changes that can lead to more efficient production, or a lower cost, on your side.

Knowing that a partnership can lead to a reduced total cost of goods through shared responsibility, assistance in the product development process through shared expertise, and long-term stability through the forming of a bond with a customer are key incentives that can persuade reluctant suppliers to come onboard and sweeten the relationship on an ongoing basis.

If your supplier is critical, a deep and mutually beneficial relationship with them is critical too.

Thanks, Joe!