Five Attributes of a Procurement Relationship That Unlock Supplier Value
Since we launched Client Share I’ve been involved in well over a thousand large Buyer-Supplier relationships. These are essentially enterprise relationships for supply / management of anything from IT Services, Call Centres and Facilities Management to Marketing Services, MPS and Recruitment Outsourcing. I’ve been continually surprised by the many differing approaches used by buyers and suppliers to manage concerns around relationship. On the face of it, it should be simple, right? You’ve won a contract, you need to deliver the services and then over time you enhance, improve and innovate whilst continually hitting SLAs. Get it right and the supplier benefits by retaining and growing their contract at good value and likewise, the buyer benefits by unlocking additional value from their supply chain. Simple, right?
From experience, it’s not, which is especially myopic when you look at the evidence as to where success derives from. Gartner will tell Suppliers that the reason why buyers buy is 53% based on relationship, 9% on price, 19% on brand and 19% on the Service. And PwC will tell Buyers that they continually leave 25% of Supplier value on the table. So, think about this: why (when suppliers know that their success lies in relationship and buyers know that unlocking value is down to relationship) is the number one reason for contract churn poor relationships?
Most suppliers are now aware that they need to improve their game when it comes to relationship management – their success is largely centered around ‘bothering to do it properly’ rather than just paying lip service to relationship. This often involves cultural change. But what about from the buyer side? How can Buyers unlock that 25% of additional value? Notwithstanding the obvious things taught by CIPS (price, negotiation etc), we know from experience that so much of unlocking supplier value lies in how you manage the supplier relationship in the first place.
So, based on seeing world class supplier relationship management in banking, insurance, tech, pharms, and professional service, here are our top 5 recommendations to unlock supplier value:
1. Relationship Definition
Far too often we see Suppliers being told they are a ‘partner’. It’s time for honesty. Most (I’d estimate 9/10) Suppliers in Enterprise are not partners; partners help business define and set strategy. Buyers must be clearer in setting expectations from their supply chain – for example, a T1 Supplier is where you need exec to exec relationships, innovation, workshops etc. T2 is all about SLA and Service and contract enhancement, T3 is where a supplier is ‘just a supplier’. Essentially, often we see Suppliers get delusions of grandeur because the Buyers haven’t been clear about exactly what they want from them. There is no shame in being T2 and T3. In fact, get it right and a Supplier can deliver more for less instead of continually bringing ‘added value’ to the table that the Buyer doesn’t need.
- Summary – Be clear about exactly what you want from your Supplier over and above your contracted SLAs.
2. Company to Company
Why wouldn’t the Sales Director of the Supplier be meeting their peer at the Buyer? Same goes for procurement, or finance or HR… It is so easy to arrange, and the cross learning is phenomenal. I’ve brokered sales directors of tech companies meeting with their peer equivalent in FMCG or PS companies and the learning experience is incredible. Both companies learn from each other and it is also a great way to get under the skin of the culture of the company you are either buying from or selling to.
- Summary – There is more to your b2b relationship than just the contract, bring your colleague to the table.
Have you heard of the RFP that was missing most of the scope that the incumbent supplier was delivering? Who is at fault? It is, in my opinion, both parties, but if you consider the buyer to be the lead dance partner then we think they should take the lead at finding a way to get their suppliers to continually update and define everything they do. It’s not good enough for the supplier to feel aggrieved when the work they do goes unnoticed, the buyer needs to open the door for them. Suppliers and Buyers need to get better at making it crystal clear what they do and when they go over and above the terms of the contract.
- Summary – Share and document everything you do over and beyond the contract that adds value to the relationship.
4. Upside Down Reviews
Start every quarterly Supplier meeting with what you would usually finish it with. If you want to unlock value from your Suppliers, then you need to allow them to bring added value to the front end. Of course, if they are failing SLAs then this might not apply, but it’s a rarity now. Most companies hit SLAs. So, don’t leave the best bits to the end of the meeting when you are tired, bored of talking about operational performance.
- Summary – Open with the future, then discuss the present.
5. Honest About Innovation
The term ‘innovation’ is thrown around like confetti. It is used in the same way the term ‘big data’ was a few years ago and ‘machine learning’ and ‘AI’ is now. We think Buyers need to be more honest about innovation in contract lifecycles. Often, we see Buyers demand innovation, yet the innovation tabled by the Supplier is continually rejected or put on the back burner. The best supply chain management has a clear definition of why, how and when innovation is delivered.
- Summary – Be clear about what innovation means to you – if it is complex give your supplier the support they need. Don’t just ask them for innovation and hope it sticks.
Invariably, the reason b2b contracts go sour has nothing to do with price, service or SLA. The failure is in how the two companies create, manage and run their business relationships. The best Supplier Relationship Management teams define what they want from their Suppliers, invite them to dine at the right tables and clearly track monitor and manage relationship; not just performance. These teams are the teams that grow contracts with their Suppliers whilst continually unlocking additional value.
If you’re keen to understand how, through Client Share, Buyers are delivering 25% of additional value or how Suppliers are retaining and growing contracts, then we’d love to talk.
About Client Share
Client Share’s purpose is to improve the relationship between buyers and suppliers. We enable suppliers to retain and grow contracts they fear losing and we enable buyers to unlock up to 25% of additional value from their suppliers. We do this through Client Share, a private digital community that makes relationships easier for both parties and brings to life Content, C-Suite, Community, Collaboration, Innovation and Feedback.
See more: www.myclientshare.com/forbuyers
Speak to our MD: firstname.lastname@example.org