With increasing competition in the business world complemented by an increasing pressure on companies to churn out a profit, managing cost has captured the spotlight as the winning strategy. Here at Anklesaria, we believe that Supplier Relationship Management (SRM) is a great enabler to managing costs. A collaborative relationship between the supplier and customer creates opportunities for cost savings that far exceeds savings achieved through negotiations. Can a business then move to a collaborative relationship after a competitive bidding process?
Many organizations I work with are required to use the traditional sourcing approach of competitive bidding. And oftentimes, I find that buyers forget to properly assess whether the right level of competition actually exists to ensure that is an adequate sourcing approach. It is possible to “create” competition, and an advanced strategist could do that by waging a “war on complexity” internally in order to switch from custom to industry standard requirements and specifications. But that requires leadership and takes time, which is an issue for many of the contracting and procurement teams I work with.
Tell me how I'm measured, and I'll behave accordingly: Once the bidding process is complete and contracts awarded, buyers and their organizations often discover the hidden costs of competitive bidding: limited or no flexibility, compromise and/or collaboration from the suppliers of these newly awarded contracts. Any small change or additional requirement not explicitly defined in the scope of the contract price, will either not be possible or will cost extra… here come deviations and amendments. And it is in those conditions that I am frequently tasked with helping customers and their suppliers to brainstorm, collaborate, and interact as one team, so they can identify and deliver cost reduction opportunities.
Suppliers selected based on lowest price will usually be reluctant to reveal a breakdown of their price and will tell you there is nothing left to “squeeze”. After all, it is the competitive advantage that made them win your business. Is this a good ground for later asking suppliers to collaborate on finding ways to further reduce costs and prices? No.
Recently, however, I was pleasantly surprised and impressed by a customer-supplier team I worked with. Six months prior, the supplier was awarded a contract based on the most competitive offer. During our exercise, the customer and supplier truly worked as a team, came up with all kinds of cost management ideas, and over the next three months, implemented six of their best ideas which resulted in 32% value improvement overall for both companies. They even went after a very difficult idea that involved sharing assets provided by the supplier with a third party in the vicinity, who happened to have similar needs. Within three months, they had negotiated an agreement and started operating for this additional customer, increasing the utilization and sharing the additional revenue created from the assets.
So why did the supplier collaborate?
In this particular case, what it came down to was the quality of the relationship between two key individuals: the customer’s user of the service and the supplier’s operations manager. Within six months of starting operations, these two individuals had forged a great working relationship. The customer had helped the supplier in all sorts of ways, mostly little details that were not mentioned in the contract. They also dedicated some off-work time to get to know each other on a personal level.
The process I made the team go through helped them develop, prioritize, and present a business case and drive a swift implementation of their ideas. But little of this would have happened without the quality of that relationship. This level of relationship is unfortunately rare to witness, but what a difference it makes when it is there.
Irrespective of the strategy, process, or approach you may have used to source, my observation is simple: do not underestimate the value of good relationships. And the best thing is that good supplier relationship management does not have to be left to coincidence or luck. With a little bit of structure and guidance, anyone can do it consistently across your spectrum of suppliers. If you are interested in building and strengthening your supplier relationships, write to us at email@example.com for courses, case studies and offerings in this space and be sure to follow our Linkedin Page Anklesaria Group. Cheers!
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