Supplier Relationship Management a Forgotten Skill?
A lot has been written about relationships between people but not much is said about relationships between companies. It’s people who run businesses and if those people don’t have a relationship based on trust, then their interactions are purely transactional. A transactional relationship is contractual almost like the olden day barter system where a product or service is traded for money. It’s almost like buying a product on Amazon. When we search for a contractor on Angie’s List or Craig’s List, we are always wary of what we will get and so is the contractor. Uber drivers have found this out the hard way when they get a drunk customer or an unruly customer. The customer does not know who will drive them when they request a ride, nor are they assured of the cleanliness of the vehicle; and the driver of the vehicle does not know what kind of a customer he or she is getting. During my days as a road warrior, it was worth my while to have my favorite cab driver pick me up. Both of us knew exactly what we would get, and we enjoyed the conversations driving to and returning from the airport. The last thing I wanted was to be in a cab with a driver who was talking to his girl friend in a foreign language or almost ready to nod of to sleep while he was driving after having been on the road for eighteen hours.
Many years ago, during my consulting days, I was assisting a client, a large mining company to source tires for its large dump trucks. The client had operations in multiple countries where tires were often purchased through distributors. Typically, a new vehicle was purchased and delivered with tires installed and when tires failed due to wear and tear it was customary for them to go to a local distributor to purchase a replacement. In the mining business a lot of rock gets hauled and hence there is significant wear and tear to the tires, requiring them to be frequently replaced. This was at a time when precious metal prices that my client was mining for had shot through the roof and everyone wanted to jump in to mining for that precious metal. Dump trucks were in great demand, but tires were in even greater demand. The large mining dump trucks needed sixty-three-inch rim tires typically made by Bridgestone, Michelin, and Goodyear. There were other manufacturers and gray market tires also, but these tires weren’t as reliable and long lasting as the big three’s tires. The demand was so fierce that the equipment manufacturer declined to supply tires when they delivered equipment. Imagine having new expensive dump trucks that you cannot use because they had no tires on them. It was hard to find tires even if you were willing to pay top dollar. The senior management team at my client were up in arms and were urging their supply chain team to reach out to the tire manufacturers. When the supply chain team attempted to do so they were surprised to find out that they got a very poor response. In some cases, the parent tire company was in a nation where there wasn’t much mining business, so the client company’s name wasn’t even recognized by one of the tire manufacturers. This was truly embarrassing for my client. They realized by not recognizing early enough that tires were a strategic commodity they had failed to establish a relationship with the key manufacturers. Without the relationship it was hard to influence the manufacturers to sell them tires directly or reduce the lead times for procuring tires. They were finding that some of their competitors were not having the same issue as they had and were having no difficulty in continuing to operate their mines. I am sure a similar phenomenon has been repeated many times over in corporate facilities across the world.
It is critical for every business to understand who their key suppliers are and use an appropriate framework to classify their supply base into those that were strategic to their business, those that provide their bread and butter and were hence core to their business and finally the remaining who were easier to replace and hence could considered as transaction to the business. It is typical to have engagements with strategic suppliers at the senior leadership levels, with core supplier who are critical for business operations at operational level, and the transactional supply base at a tactical level. This is an exercise that must be repeated periodically as situations change and the criticality of an item to the business can change rapidly with time. For e.g., the recent chip shortage got firms to think differentially about their chip suppliers.
Many large companies do go through an exercise to classify their supply base and attempt to have more interactions with their key suppliers. For the most part this is a book exercise and doesn’t lead to strengthening relationships with suppliers. Based on categorization of the suppliers, meetings are set up and held but there is poor communication of what was discussed between the two parties to different levels within the organization. As a result, there is chaos as the operational folks who complained about the product or service and the service level feel that the higher ups ignored their concerns and were more interested in schmoozing with their suppliers and attending a sporting event or golf outing with the supplier’s leadership. When you accept a reward from someone it is hard to criticize them afterwards. The issue is not accepting the reward as much as making sure by accepting a reward you are not inhibiting your ability to provide critical feedback that was passed on to you from the operational teams. Often times supplier teams are better integrated, and they hear about the messages their senior leadership conveys to their customers, but that is not so within the company. In my career, I can only remember two senior managers who were extremely diligent about communicating what they discussed with the supplier leadership so the entire company team could have clearly understanding of where we were going with the relationship and what the expectations were.
The salesmen from the suppliers play this game of relationship building in a much better way. They are delivering donuts or breakfast every week to the supplier site and engaging in conversation with the engineers. The stickiness they establish by doing so makes its hard for the engineers to consider switching form that supplier. Maybe there is an important lesson here for the supply chain professionals. Maybe they should be doing similar visits to their suppliers’ sites and make themselves their suppliers most favorite customer. To the best of my knowledge this is not something most supply chain professionals even consider doing.
Another big farce are the supplier management meetings for monitoring performance. These are expected to be sessions where teams from customer and supplier can get together to improve the status quo and solve issues and problems. Don’t get me wrong, those things do happen quite a bit. But when it comes to discussing supplier performance is when the whole meeting starts to break down. The supplier and customer each come to the meeting with two different sets of data and inferences. A lot of issues are raised based on hearsay, but very little effort is put into documenting the issues accurately when they happen. With differences in inferences from the data the meeting becomes more of a slug fest with action items taken for further investigations which often don’t yield much. Humans love to complain but when they are asked to record their complaint and document the information clearly, they are reluctant to do so. I remember setting up a system to do so using a Paradox database in the small fastener company I worked with early in my career. Larger companies struggle to do so and do not have a uniform way of capturing information about a supplier’s performance. As a result, a lot of issues become just hearsay and get magnified manyfold as they get passed from one person to another. Without any substantiable evidence, the supplier feels vilified when accusations are thrown at them. So the supplier management meeting instead of taking the relationship forward strains the relationship even further.
Organizations that are serious about building and maintaining their relationships with their suppliers should not wait for a crisis to do so. Senior leadership should help define the approach and lead the way. Meeting with suppliers to discuss issues does not alone grow relationship, organizations should invest in providing recognition to their suppliers when they do a good job. When things go wrong rather than pointing finger they should work with their suppliers to develop them when they have deficiencies and provide constructive criticism. Doing so will help companies reap the benefits when a crisis comes and not have to worry about who will get preferential treatment when there is scarcity.
