Supplier collaboration has been a hot topic in procurement for some time. Do a Google search for the terms “supplier relationship management” or “customer of choice” and you’ll get tens of thousands of hits. Yet, despite procurement’s aspirations of building stronger supplier relationships, their actual practices frequently seem at odds with this.
Sales teams I speak with complain that their customers’ procurement organizations talk about “collaboration” but use win-lose negotiation tactics. There’s a heavy emphasis on squeezing price out of suppliers. As a consequence, procurement’s approach to supplier relationship management (SRM) can feel nothing like they are trying to be the “customer of choice.”
If your customers’ procurement organization talks about collaboration but seems more focused on price, maybe they are not trying to be deceptive. It may simply be that their practices and alignment haven’t caught up with their aspirations. This may be an opportunity for suppliers.
For most B2B sales teams, there’s an opportunity to become more skilled at engaging and navigating procurement. This includes better understanding the “why” behind supplier collaboration and the barriers to adopting supplier collaboration. We will discuss each of these below.
Why Supplier Collaboration Matters?
The focus on supplier relationship management and collaboration isn’t an altruistic endeavor. The buyer receives tremendous business benefits from deeper supplier relationships. There are lots of studies on the impact, here are some select statistics to consider:
- Best practice supplier relationship companies achieved 3 to 13 times greater savings than their peers from SRM efforts
- Early supplier involvement in product development can save 30-50%
- Procurement organizations with advanced supplier collaboration capabilities grow EBIT at 2x their peers
- Majority of companies implementing SRM have seen a positive financial benefit
What are Sources of Collaboration Value?
Buyer-supplier collaboration can impact several areas of the customer’s business. These can include:
- Growth: Grow revenue, speed to market for new products
- Costs: Lower total costs, improve productivity, better planning
- Innovation: Access to supplier innovation and ideas
- Risk and sustainability: Assurance of supply, lower risk, better regulatory compliance, and sustainability
- Greater quality: improved quality and service
What are the Barriers to Supplier Collaboration?
If you work in sales and you think it’s not you but procurement that can’t collaborate, you may be right. In one survey of procurement leaders, almost all respondents (90%) indicated that key suppliers were willing and able to collaborate. In an academic study, suppliers were more willing to collaborate than buyer organizations. Buyers were afraid of dependency and suppliers taking advantage of them.
While the benefits of supplier collaboration are well known and the aspirations in procurement are high, there are often barriers procurement faces. These include:
- Too heavy a focus on costs/price and not on value
- Lack of SRM competencies and skills in procurement
- Mis-aligned objectives and commitment (between the business, procurement, and suppliers)
- Poor communication, information sharing, and trust
- No framework for collaboration (governance, strategy, process, tools, metrics, gain sharing)
For key suppliers that want to engage in a more collaborative relationship with customers and move the conversation away from price, there’s an opportunity to design programs and tactics to educate procurement and address the key barriers above. Helping procurement get beyond price and co-creating value should have tremendous benefits for both sides.
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