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Wednesday, April 16, 2014

Rules of Engagement

Although 85 percent of buyers segment their supply chains to develop collaborative relationships, only 2 of every 5 such partnerships are run with standardized procedures, and almost one-third of procurement managers are dissatisfied with the results.

When done correctly, collaboration with suppliers can yield major returns in added business, market share, revenue and profitability, says the Boston Consulting Group (BCG).

In a previous posting I examined a BCG study titled Buyer-Supplier Collaboration, which discusses why many programs have problems and cites five steps necessary to their success. Today, I will look at these steps and what BCG recommends procurement executives do to build successful collaborative relationships with suppliers.

1)  Segment suppliers to find strategic partners. Not every supplier can enhance a buyer’s operations. BCG advises targeting strategic suppliers, companies that get a large amount of a buyer’s business and thus have an interest in maintaining it. These suppliers provide value in such areas as marketing know-how, proprietary technology, manufacturing and product development. “Economic impact and perceived customer value” are the primary calculations companies must make in determining how to partner with suppliers, BCG writes.

2) Create the right capabilities and organization. This includes standardizing metrics that allow a buyer to gauge suppliers’ operations. Considerations include: cost engineering to evaluate a supplier’s products and processes and understand the economics of a relationship; quality management, which covers products and associated services; supplier development to enhance partners’ capabilities; trend scouting to identify emerging technologies and supply options; and partnership influence, getting multiple suppliers to work together to improve critical components and subsystems.

3) Motivation. Strategic suppliers have their own resources and capabilities, and need compelling reasons to collaborate, BCC says. Buyers do this by aligning the benefits of a partnership with incentives that will improve a supplier’s business. These can include such considerations as more business, technical advice and ways of upgrading supplier operations. The most important incentive is trust, which means a supplier must see and believe in what a buyer promises.

4) Structure collaborative programs. A buyer’s senior management must buy into collaboration as fervently as suppliers. The only way to ensure this on both sides is to promote credibility through a program that is clear in its goals, transparent, open to communication between parties, and which states the benefits of partnering.

5) Make a long-term commitment. Buyers need to convince suppliers and their own senior management that they are in collaborative programs for the long haul. “Change management is critical,” BCG states. This means that purchasers and suppliers must make the necessary commitments in time, money and relationship building to meet consistent and regularly articulated objectives, best practices and frequent progress reports. Most importantly, BCG writes, “Conversations must shift from ‘What’s in it for me’ to ‘What’s in it for us.’”

BCG concludes by noting that most buyer-supplier collaborations are in their early stages, and this represents “an opportunity more than a problem.” Companies that rethink current programs or set out to create truly progressive collaborations will, with their suppliers, gain a virtually unbeatable set of competitive benefits.

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