The Death of Strategic Suppliers

SECRETS OF SUPPLY CHAIN SUCCESS: THE DEATH OF STRATEGIC SUPPLIERS

Supplier Relationship, SUPPLIER RELATIONSHIP MANAGEMENT, SRM
Rules, 3. Reshape Supplier Relationships

OVERVIEW

The New Rules of Procurement Engagement is all about challenging the norms and embracing a new way of thinking that is better suited to today’s ever-evolving commercial world.

One of these norms, or traditional approaches is the concept of ‘strategic suppliers’. But is the notion of singling out certain suppliers as strategic (and by definition other suppliers as non-strategic) becoming outdated? Is it time to redefine our approach and embrace a more inclusive model that values all suppliers equally?

This is the question posed to leading industry changemakers as part of our latest Reshape Supplier Relationships eBook.

This blog shares their insights on whether it’s time to move on from thinking in terms of strategic versus non-strategic suppliers in order to improve overall supplier relationships and performance.

Read on… or Download the eBook now!


STRATEGIC VS. NON-STRATEGIC

The concept of ‘strategic suppliers’ (or direct and indirect suppliers) has long been a key strategy for procurement. 

But is the notion of singling out certain suppliers as strategic (and by definition other suppliers as non-strategic) becoming outdated? 

Is it worth questioning the validity of this type of thinking? 

In today’s dynamic supply markets, where agility and adaptability are paramount, does clinging onto traditional supplier segregation rules risk overlooking the potential value that a diverse array of suppliers can offer?

By dismissing the idea of strategic versus non-strategic suppliers, the way in which the supply base is perceived changes—perhaps unlocking a wealth of opportunities that may otherwise have gone unnoticed. 

“Sometimes, procurement refers to people as ‘strategic clients or strategic suppliers,’ but there is no substance to that. It’s just a tag you apply on a supplier. I wouldn’t even say a ‘relationship’ because sometimes there’s no relationship. If you just use words but your actions don’t line up with them, it’s useless, and it makes the relationship fake.” Pierre Laprée, SpendHQ 

We’ll explore how procurement can build more progressive, future-oriented supplier relationship management. 

But first, let’s look at dysfunctional characteristics that create unproductive relationships, and how to flip these traits into a more positive, partnership mindset.

Dysfunctional characteristics

Dysfunctional may be an extreme term in this context but when supplier relationships fall apart through poor communication or a lack of trust then, by definition, they no longer function in a way that’s conducive to success.

Here are some of the most common ‘unhelpful’ traits.

Lack of communication; this is always likely to lead to misunderstandings, delays and missed opportunities for collaboration.” Temeena Hussain, Market Dojo

“Supplier relationships can be too one-sided and unfortunately that happens often; sometimes because of the supplier, and sometimes because of procurement.” Pierre Laprée, SpendHQ

Unmet expectations; when supplies consistently fail to meet expectations it can strain relationships. The solution here is to be crystal clear on agreed performance metrics; if you’re vague on these it leads you open to misinterpretations and misunderstandings.” Temeena Hussain, Market Dojo

“All relationships need to have some balance and you need to recognise that it takes two to make a good deal. If you make it one-sided, you’re poisoning the relationship even before there’s ink on a contract.” Pierre Laprée, SpendHQ

Lack of transparency; when this is absent it erodes confidence and the collaboration suffers on both sides.” Temeena Hussain, Market Dojo

A partnership mindset

Taking this advice on board, procurement needs to cultivate strong, resilient, mutually beneficial partnerships by viewing all suppliers through the same lens, namely

1. Open and two-way communication

2. Balance of shared objectives and contractual obligations

3. Clear, measurable expectations and metrics

4. Transparency throughout the sourcing process

5. Collaboration of ideas and innovation

Supplier relationships built on shifting sands of unpredictability, uncertainty, and instability will only reap this type of dysfunctional association.

Instead, seek out the qualities that are essential prerequisites to good supplier relationship management.

“Focus on value creation. Shift your focus from transactional interactions to value creation opportunities. And this is for all suppliers, regardless of the categories” Temeena Hussain, Market Dojo

“The relationship is the atom. It sits in the middle of everything. If you drive a better relationship, everything that flows from that will improve. If you look at risk (for example) before the relationship, it’s almost like trying to fix the symptoms without understanding the source. So it’s very important. The relationship is the nucleus at the centre of everything.” Sheldon Mydat, Suppeco

We’ve identified four key areas that will help to create exceptional, future-proof supplier relationships.

1. BUSINESS ALIGNMENT

It may seem an obvious one, but suppliers need to be aligned with the business requirements, culture and values. 

This is increasingly important in terms of meeting ESG and CSR goals. A supplier that is not aligned with core business goals can be a dangerous thing.

Procurement needs to engage key stakeholders in defining what the business requires from its different suppliers, then seek suppliers where there’s a good ‘fit’.

“Have a conversation with your stakeholders to understand what you’re looking for from a vendor relationship. You might come across a situation where a supplier has a small volume of spend with you but is critical to the business. Having an understanding with the business on who your key suppliers are and how much you need to invest in those relationships is the first step.” Pierre Laprée, SpendHQ

2. COLLABORATION & CO-RESILIENCE

The best risk planning and contingency scenarios will fail if they are only ever designed to be executed within the company walls. 

Each company operates in a larger ecosystem of customers, suppliers, shareholders, and communities. How a company engages and cooperates with these stakeholders significantly influences its outcome in terms of success or failure.

“It’s very important that customers and suppliers alike recognise that they are not alone as customers or suppliers. And when that is understood, it sets out a better playing field; a more collaborative and co-resilient playing field; because resilience is only true resilience if it’s co-resilience.” Sheldon Mydat, Suppeco

In a survey of more than 100 large organisations in multiple sectors, McKinsey found companies that regularly collaborated with suppliers demonstrated higher growth, lower operating costs, and greater profitability than their industry peers.

“Co-resilience is based on collaboration. In order to make co-resilience work, you’ve got to be more open; more visible; you’ve got to create access; you’ve got to be supportive.” Sheldon Mydat, Suppeco

3. A STRUCTURED, QUANTITATIVE APPROACH

People are critical to relationships, but so is data in a business setting. Data removes the emotion, the biases, the misconceptions that can adversely affect decisions and can create misunderstandings.

“You need a quantitative view of the relationship, and you need the proper data to get it. So how can procurement get that? Make sure that you invest in the right technology to know where you stand when it comes to the supplier. That means knowing your spend with the supplier but it also means understanding the balance and trade or the balance of power, because your supplier may also be one of your clients. Taking a data-driven view of the relationship helps clarify a lot of misunderstandings.” Pierre Laprée, SpendHQ

Going hand in hand with using data to inform decisions, having a professional, structured, and consistent approach to managing suppliers is critical. Relying just on personal relationships is a big risk on many levels. 

“You need to define how you will handle supplier relationships in a programmatic way. You need to segment your suppliers and, based on the segments, you need to define expectations, how you will interact with each other and how often. When you have many thousands or tens of thousands of suppliers in your supply base, you cannot just have an ad hoc approach to relationships. You need a framework to govern those relationships.” Pierre Laprée, SpendHQ

Having a process for managing suppliers is one thing; ensuring it’s followed is another. 

Supplier management software that includes supplier onboarding, performs spend analytics, e-sourcing events and processes is essential in providing actionable insights and decision-ready data.

4. BE THE CUSTOMER OF CHOICE

Lastly, as supply chain challenges continue to hit procurement from all sides it’s important to be seen as the customer of choice by your suppliers.

In tough times—whether an economic recession, political instability, or supply blockages—being front of mind with suppliers might be the difference between surviving the tough times, or not. 

“You need to change the way you manage your suppliers because you need to make sure that you have the invaluable position of ‘customer of choice’ when your supplier has to prioritise who they ship something to; you better make sure that you entertain a good relationship with them so that you are near the top of the list.” Pierre Laprée, SpendHQ

ON-DEMAND SRM SOLUTIONS BY MARKET DOJO

Market Dojo’s on-demand supplier management software helps you digitise supplier relationships to centralise data, streamline processes and accelerate performance.

Seamlessly Onboard Suppliers fast to accelerate time to value and robustly screen for compliance and ESG with Market Dojo Supplier Onboarding

Centralise and maintain data integrity. Track supplier performance and risk whilst ensuring resilience, diversity and ESG success with Market Dojo Supplier Management

Collaborate to innovate. Refine, enhance and respond to the ever-changing markets with Market Dojo Supplier Innovation

 

In the next blog in this series, we’ll explore Beyond ESG and Supplier Diversity—what’s the real impact (and strain) of ESG and supplier diversity on long term business growth.

Can’t wait…? Download your copy of the Reshape Supplier Relationships eBook now!

Download How to Reshape Supplier Relationships eBook by Market Dojo

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May 30, 2024
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