The idea of creating competitive advantages through deeper cooperation with suppliers is not new. More intensive cooperation with key suppliers is an essential factor in developing the right answers to the challenges of the day – such as climate change – under the conditions of the current polycrisis.
Working more innovatively, efficiently and sustainably
The pandemic, Ukraine war and heightened geopolitical tensions have made companies realize that it is crucial to accurately assess their own supply chain and be a trusted partner to key suppliers, rather than just one customer among many. True eye-to-eye collaborations also offer high added value for suppliers, so don’t be afraid to reach out to your desired partners.
Establishing a modern cooperation model ultimately means treating suppliers as an extended component of your own value creation. A number of advantages result from the close dovetailing and coordination of your own and suppliers’ activities:
- Becoming more efficient:
Collaboration unleashes synergy effects in the delivery process, e.g. by eliminating overlapping expenditures
- Generating more value from the relationship:
Collaborating companies are raising quality, increasing innovation, and accelerating the speed to market
- Reducing overall supply chain risk:
Working closely together means to increase transparency on secondary and tertiary levels of supply chain
- Enhancing agility:
Having a carefully designed supplier ecosystem as an integral part of the operating model offers the chance to react quickly to changes in customer demands
Joint optimization of the supply chain: risk management and resilience
Recent years have shown how fragile global commodity flows ultimately are. By working together with suppliers, you are informed earlier and find solutions together more quickly when risks arise. Companies that work closely with their suppliers also have an advantage when it comes to positive developments: This applies, for example, when quick solutions need to be found for sudden surges in demand.
Identifying the right suppliers for deeper collaboration
Deeper collaboration cannot be done with every supplier because of the amount of work involved. Identifying a select number of suppliers with whom to run this program is one of the crucial steps of design. It is important to define an objective framework to facilitate supplier selection. Typical dimensions covered in such frameworks include:
- Category strategy:
What is the direction of travel the business wants to take concerning the products or services supplied by the vendor
- Operational capability
incl. design, delivery, quality
- Service levels:
Level of consistency delivered by the suppliers over the history of relationship
- Innovation and technology capability
(e.g. for retail it may mean new sewing and cutting techniques)
Although spend is a tail indicator, typically highest spend suppliers tend to make it to strategic suppliers list
Aside from above, all suppliers should have a base layer of capability. The definition of base layer would vary per company, but the typical examples could be code of conduct, level of capitalization, tech infrastructure, security protocols etc.
Defining governance structure
Another important point to consider while designing supplier collaboration programs is governance. Defining governance structure includes clearly articulating the key meetings that will take place with the suppliers, the agenda of these meetings, and the participants.
Governance set-up is further strengthened by putting in effective performance management measures. This includes clearly defining KPIs (often seen in form of supplier score cards), having a regular performance management session to give structured feedback to the supplier partners. Formal 360 degree feedback mechanisms are a good way for companies to give feedback to the supplier partners and vice versa.
Involving suppliers in creation and delivery of implementation plan
Ultimately, trust is at the core of a collaborative relationship. Suppliers will need to see clear benefits that they can derive as a result of their efforts. They will see through very quickly whether words are translated into action or not. To this end, it is important that as part of the program design, companies take time to understand what the key desires from their supply base are, or what they can do to deliver value for their suppliers.
Getting leadership team Buy-in and commitment
Supplier collaboration programs have a long gestation period. Significant time and management effort need to be put in before the program will generate value. Although these programs are typically initiated by the supply chain departments, it is important to secure C-suite or senior leadership commitment early-on as these programs typically need substantial cross-functional involvement from both sides.