A New Way of Doing Business is Required (Part 2)
In my last article, A New Way of Doing Business is Required, I talked about the importance of customer relationships. Specifically the importance of having authentic discussions with your customers, to ensure that you fully understand their needs and why they buy from you.
In this article, I want to concentrate on supplier relationships.
For a couple of years now, the business environment has been changing. There is now a significant cost focus. Before, there were lots of people in the supply chain and all of them were taking a margin - I’m sure you remember the stories about the mine-site cleaners earning six figure salaries.
Now demand has reduced and those big profits don’t exist.
This cost focus started at the ‘top end’ of town. Large companies have reduced the number of their employees, they have outsourced non-core operations and they have renegotiated their supply contracts. This means that anyone dealing with the ‘top end’ has been forced to take a lower margin.
Many smaller businesses have been dealing with the same suppliers for a number of years. In most cases the relationship is OK, it functions pretty well, but often the relationship has not been seriously reviewed for a number of years. I’m not referring to a simple pricing review, I’m talking about a full strategic review of the relationship. Effectively assuming that you are starting from scratch.
We’ve recently assisted clients with strategic reviews of some of their supplier relationships. In these cases, the reviews were of professional relationships however, there is no reason why the same principles can’t apply to any supplier relationship.
The reason for the strategic review was a realisation that the original reasons for forming the relationship no longer existed. In some cases the relationships had been formed with a particular employee of the supplier, who has since moved on. In other cases, the business and the supplier were initially doing joint initiatives, but these initiatives were no longer taking place. Finally, in some cases, the businesses had simply outgrown the supplier, hence they were no longer operating in the same segment of the market, or worse the supply was not reliable.
When we reviewed these relationships, it became clear that the business was not getting the best value.
On the businesses behalf, we undertook the following process:
- Analyse what was working & was not working with the current relationship
- Conduct interviews with owners (and key employees if required) to determine ‘must haves’ and ‘nice to haves’
We then analysed the market to determine potential alternate suppliers and presented a formal document to the alternate suppliers. If the current relationship is basically intact, the existing supplier also received the new requirements. If the relationship had broken down, the existing supplier was excluded.
The suppliers were given a reasonable time to prepare their responses and return them by a set date. Interestingly some suppliers respond early, some did not respond.
Once the responses were received, we analysed the responses and shortlisted the best responses.
The final component was a presentation from each of the shortlisted applicants. These presentations allowed questions from the business to the supplier (and vice versa).
Interestingly, the most successful suppliers took the opportunity to focus more on the relationship as opposed to the financial aspects. It was at this point, that new relationships were secured. The successful suppliers were not only able to articulate the features and benefit of their product or service, they were also able to articulate other relationship benefits whether they be efficiencies of new technology, reciprocity, strategic partnerships, joint bidding etc. It was this final step that made all the difference. The whole process moved away from being a transaction to a relationship.
The end result has been extremely positive. The business has a supplier relationship that provides more value. The successful supplier either retained a client, or secured a new client. New partnerships were formed and the business and the supplier became advocates for each other – leading to more business for both. I think this is a win-win situation!