I’m asked often to identify the correct relationship that companies should have with suppliers. Many clients are surprised at the answer, which is the minimum relationship that will enable you to meet your business objectives. If you’ve read my blogs or heard me speak, you may now be asking “is this the same Bill Michels who says companies need suppliers for innovation and that the best customers get the best ideas?”
There’s a wide range of relationships. I classify suppliers as competitive market, proven suppliers, performance driven suppliers and strategic alliance partners. As a supplier moves up the relationship curve, the intensity of resources required to manage the relationship significantly increases. Logically, it’s impossible to drive all of your supplier relationships into the strategic alliance classification. Strategic alliances normally involve shared capital, objectives, resources, business information and equity. The partners are interdependent and have significant synergy which enables them to achieve competitive market advantage by the strategic linkage. The strategic alliance is a rare relationship for many companies and one that is not easy to achieve. Although many companies believe they operate with strategic alliances and refer to their suppliers as partners, they actually have competitive market and proven relationships.
The second part of the supplier relationship question posed to me is “how can I operate with both a business and personal relationship?” The business commercial relationship must always be the dominant relationship. The personal relationship is helpful in achieving preferential treatment as the customer of choice.
The key to developing the right supplier relationship is to move beyond a price focus to a value focus. Value can be defined as:
- Speed to market
- Product improvement
- Process improvement
- Complexity reduction
- Systems integration
- Shared risk
- Shared rewards
- Aligned business objectives
- Shared resources
- Market intelligence
- Waste reduction
- Redesigned products and specifications
- Lowest cost producer
While it is unfortunate that some companies and industries remain focused on tactical strategies which are short term price-based. To survive in the future, supplier relationships must be mapped, managed and optimized for value delivery.
What is the minimum relationship that will enable you to meet your business objectives?
Sometimes it’s a true strategic alliance, but sometimes it should be arm’s length.