Everyone is talking about change. Transformation. Millennials. Digital. Continuous Improvement. There are likely many more words that are tossed around to explain the change everyone is either experiencing or are being told we need to do. A lot of time and effort has been spent on transforming procurement – but what about the change occurring within your supply base?
The small, medium and even large suppliers in your supply chain are changing in massive ways, whether you are aware of it or not, as the world around us becomes more sophisticated and yet more complex.
Think about the once and largely current adversarial procurement and supplier relationship, defined by price negotiation, leverage, and supplier real or perceived dependency on your business. That “relationship” is quickly being replaced by necessity. The same market factors impacting your organizations are also impacting and enabling suppliers’ work in new and improved ways. These market factors include technology, competition for the suppliers’ scarce capabilities with your market competitors, social media and a new generation of more inclusive millennial leaders. All of these factors are leading to a world growing more collaborative and strategic every day.
In the not too distant future, suppliers will be selecting you vs. procurement selecting suppliers. It is the evolutionary nature of transactional business relationships when the power moves (from time to time) to those once less powerful. Some of the realizations that suppliers are coming to recognize include :
- They know they hold the keys to the kingdom given that they offer something needed and valuable to a larger entity;
- They have a marketplace that is nearly limitless due to new-found marketing abilities through the internet and social media;
- They honor relationships that are highly collaborative and encourage innovative solutioning.
All of these realizations will dramatically alter suppliers’ relationships with the biggest companies around the world.
Imagine what this means for you, a procurement professional. If you want to add maximum value, get the best total cost of ownership and create a competitive advantage through your supply chain, gone are the days of price-only negotiations. In many markets now, if you just want to obtain sources of supply, one cannot compete solely on price. What happens when supply is scarce – which company will a supplier choose to supply? The company that is adversarial and has a low price point where no margins are earned? Nope. The supplier has a choice and they will choose the companies where there is a mutual investment in success, a trusted relationship andan understanding that the supplier is an extension of the supply chain team.
After spending 16 years in the world of procurement and the last year working with companies in a number of supply chains, I’ve had an opportunity to see what I believe will be the future state of supply chain relationships, not in 10 or 20 years but in one to three years. This future will drastically change how procurement operates and ultimately provides value.
Relationships with your suppliers will begin to look like relationships within your own teams. Think about this – are you willing to pay a little more for a super talented employee who is in high demand? Typically, the answer is yes, as you know full well an “A player” will return value in droves compared to the rest. What would happen if you only focused on the salary negotiation with that “A player” and did nothing else? Likely, you will not see their value and they will choose to leave. Sounds crazy, doesn’t it? And, yet, we do this with suppliers all the time. That has been largely the procurement world for the last 25 years.
To shift to value providers from price-focused organizations, procurement will have to do the following:
- Understand that if their suppliers are performing at their best, then everyone wins.
- Provide learning and deployment opportunities to their suppliers.
- Offer exposure to top-performing suppliers internally and externally via social media and other outlets.
- Look to suppliers as a way to differentiate in the marketplace.
- Extend vital aspects of their culture into the suppliers’ cultures.
- Focus on retaining top suppliers as the cost of change is too significant.
- Look to suppliers to collaborate and provide unique solutions to solve business problems or market opportunities.
Through this type of relationship, procurement will become a customer of choice as well as becoming a destination of choice when hiring employees. Doing so requires treating your suppliers as a strategic capability to your supply chains, not merely external vendors. This new-found relationship has to be more than talk and must be supported by a culture of real care in supplier success, programs to help your suppliers grow more capable and platforms for communicating with your suppliers.
The future is bright for those procurement organizations that grasp the changes that have already begun. They are the ones who are excelling in becoming value providers to their organizations, delivering on innovation, and yet are lowering the total cost of ownership in their supplier relationships.