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When talking to friends who invest money in stocks or companies professionally or when reading about well-known (or well-heeled) investors, two investment strategies often stand out (1) invest in companies with a great business/revenue model and (2) invest in companies with excellent management.
If the “smart money” thinks that the talents and abilities of a company’s executive management team can contribute significantly to its performance and success, it is reasonable to believe that there are sourcing scenarios and supplier relationships where the executive team and ownership of a supplier are very important. For example, some leaders may be great entrepreneurs but lack the necessary operations or finance background to take a young company to the next level; other leaders may be great at hands-on operations but poor with people and customers. The scenarios are too numerous to detail but, I think it’s pretty straightforward why a talented executive team can be important so I won’t drill down any more other than to say that the smaller a company is, the more important its leadership is likely to be in impacting supplier performance.
A more complex aspect of understanding who a supplier is its ownership and ownership structure. Leadership often sets the tone or culture of an organization, but the history and ownership of a company can be just as important. A successful business unit within a large cash-generating conglomerate is more likely to survive the next downturn with little business continuity risk than a privately-held mid-sized operation. The European company owned by two seventy-year old brothers with no succession plan and no children is less likely to be able to support the new product line that launches in 2017 than the publicly-traded company whose new forty-year old CEO was a recent shining star at an industry leader. Likewise, working with the hands-on owner of a boutique advisory firm who guarantees customer satisfaction can be very different than dealing with the fast-charging big-firm consulting partner who can only guarantee a high number billable hours. Beyond capital structure, many large companies have supplier diversity programs that promote and/or mandate that some business be done with women and minority-owned suppliers.
The background and reputation of a supplier can also indicate likely success in a relationship or raise any number of red flags. One easy starting point is to request and then actually call supplier references. While the presumption is that a reference will give a glowing testimony, the truth is that while most may present an optimistic view, when you boil it down, most will also try to answer your questions honestly. Beyond references there is Google. Beyond Google, there are many different news and information services that can provide a comprehensive view of a supplier’s public or notable activities and other new information. Outstanding lawsuits are something to investigate – while some lawsuits may be explained away or are simply not relevant to your sourcing decision, as often as not, they can also be a huge red flag.
Industry Certifications may be a requirement in your RFP or they may be requested in an open-ended ‘throwaway’ question like “Please list all of your certifications, credentials, etc.” If you are going to ask the question, you should consider the responses and whether or not they have an impact on the supplier’s bid. If they don’t or if you’re not going to consider the answer or if the answer is only in the new RFP because it was in the last RFP, do everyone a favor and delete it.
Remember in certain sourcing scenarios the supplier’s “who” can have a big impact on the supplier’s “what” and “how.”
This article originally published on CPO Rising on January 26, 2012.
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