Treat Suppliers as Partners

In its latest study, "Negotiating and Managing Key Supplier Relationships," Vantage Partners examined the benefits of managing supplier relationships with the application of relationship management processes and metrics. The study found that companies that closely manage supplier relationships see greater results over time. "If a company is only focused on costs, there comes a point where there is nowhere else to go," explains Larraine Segil, alliance expert and a partner at Vantage Partners. "You can do great on cost-savings for a few years, but then you are left with some unhappy suppliers." Segil notes that although some companies refuse to properly manage their supplier relationships and simply "squeeze every last dollar out of their suppliers," the suppliers usually make up for some of that money in the long run. "If your suppliers are unhappy, they will be less reluctant to throw in value-added items, which can really cost a company," she says. In addition to providing materials, Segil says, suppliers can also be great innovators in a certain business, which the suppliers may pass on to their business partners. "But if you do not correctly manage the relationship, many suppliers will not be keen on sharing innovations for your benefit," Segil says. The study found that 80 percent of those surveyed believe that strong supplier relationships deliver at least a 25 percent greater value over weaker relationships. "There is a real financial advantage that comes from relationship management," Segil says. To facilitate strong relationships with suppliers, Segil says, companies need to devote time and resources in addition to top-level support. "A lot of training is also involved to ensure that everyone in the organization has a grip on the concept of relationship management," Segil says. Procurement professionals who participated in the survey also stated that they could improve their company's bottom line by realizing savings of $43 million annually through the application of strategic relationship management tools and processes to key supplier relationships. Respondents who stated their answer with the most confidence reported that on average, they could save almost $56 million. To achieve greater profitability and gain a competitive edge, many more companies are partnering with their suppliers, borrowing elements of the Japanese keiretsu model, which emphasizes integration, long-term relationships, and joint gain. Such relationships are characterized by a high level of trust, mutual respect, open and efficient communication, shared risks and rewards, commitment to each other's success, and the ability to constructively deal with differences.