I attended SAP Ariba LIVE last week and an interesting issue arose related to supplier relationship management as well as a business stakeholder’s ability to identify and properly partner with strategic suppliers.
The fact is that while meeting suppliers is not particularly difficult, finding the right ones and managing them well is. Heightened competition in a market that has become increasingly global and increasingly complex means that businesses are more reliant upon their suppliers than ever before. Whether you work in the enterprise software market or some other industry, maintaining a market leadership position across an entire business cycle has never been more difficult. To thrive in such a fast-moving environment, true industry leaders are placing greater trust in their partners and suppliers as they attempt to gain every market advantage. These enterprises know that no organization, group, or individual has cornered the market on innovation and that their goods and services are improved when their suppliers are operating at an optimal level.
While businesses generally understand and acknowledge the fact that their supply base generates value for the enterprise (also, that strategic suppliers actually exist), the reality, as seen in the survey results to our annual CPO Rising 2019: #ValueExpansion report, is that very few (20%) organizations do a very good job managing their strategic suppliers while a larger number (31%) do a poor job of managing them. Our active readership of Chief Procurement Officers and other procurement professionals shouldn’t need a list of the reasons why managing strategic suppliers is an important activity worthy of resources and focus, so, instead… I will list some of the reasons why enterprises fail to collaborate, engage, and ultimately manage their strategic supplier relationships.
- Job turnover – With average job tenures getting shorter each year, business professionals are less able and therefore, less likely, to continue to build and manage the interpersonal relationships with the key constituents at the supplier organization. The new stakeholders miss the fact that the account teams at your strategic suppliers have typically made extra investments in making the relationship work. When new stakeholders come in, it can be easy for them to miss what has happened in the past and move quickly beyond it. There is no excuse, however, to ever forget that all business is personal.
- Short-term focus – The pressure to deliver and hit financial targets may put pressure on businesses to bypass, and in some cases, marginalize their long-time partners in an attempt to capture short-term gains. Sometimes it has to be done, but sometimes this tactic is akin to cutting off your nose to spite your face.
- Inability to define strategic suppliers – It requires a level of organizational maturity, that is frequently lacking, within procurement and at the stakeholder level to be able to segment suppliers based upon strategic impact. Segmentation by size of spend (or size of supplier) should not be the only filter.
- Lack of resources – When an enterprise has no spend visibility, limited sourcing prowess, and little-to-no P2P infrastructure, resources are generally allocated to addressing core problems.
- Organizational arrogance – When a business grows/succeeds consistently over a period time, a level of arrogance can come into the picture that enables the enterprise to forget the key supplier contributions that led to improved quality and customer wins.
- Poor systems and processes (aka becoming a high-cost customer) – Do you want to be a high-cost or “frictionless” customer? Does it take months to execute a contract? Does it take you forever to pay your customers? Are there high or any transaction costs borne by the supplier? Is there a significant financial cost of supplier enablement that is borne by the supplier? Is there a significant investment of time and resources required for a supplier to be enabled?
- Lack of business context – When new stakeholders start managing the relationship, it is worth spending time trying to know and understand their suppliers’ business. Failure to do so can result in poorly-framed customer requests, divergent expectations on both sides of the partnership, and the erosion of trust.
- Lack of investment in the relationship – Unless you have what is viewed by the supplier as a large volume contract, contracting a supplier to deliver a good or service, having them deliver it, and then paying them is not an investment in the relationship. That is contract management and there is a difference.
Strategic relationships with suppliers are never built over night and they are much easier to maintain than to build. Best-in-Class enterprises understand that suppliers should be viewed as a source of knowledge and expertise that can be leveraged to competitive advantage and mutual gain. Supplier relationship management strategies should not be applied uniformly across the supply base (yes, each enterprise has many more tactical suppliers), but the proactive management of strategic suppliers should not be left to a small minority of enterprises. No matter your industry or position within it, going it alone (i.e., operating without the support and engagement of strategic suppliers) can be a risky proposition. Why take that risk when avoiding most of the bullets above is so easy?
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