Supplier Partnering

Supplier Partnering—Keep Your Profits Up & Costs Down (1401 Words)

Supplier Partnering Means Better Profits for All

Supplier partnering challenges American business conventional wisdom. Throughout most of the twentieth century, American business had functioned based on the paradigm of adversary transactions. Squeezing the lifeblood out of all, that fall unknowingly victim. When I entered the American workforce as a salesman, in the 1970s, I learned that many small manufacturers called this the Sears Syndrome.

Decades ago, this syndrome was prevalent in situations where small companies supplied large national companies. While today, it might not be fair to degrade the name of a respected American retailer, decades ago this was conventional wisdom in the supply sectors. Fortunately today, we are seeing a major business philosophical shift happening before our eyes! The cost of doing business is steadily increasing yet only in a few industries are profits increasing to keep pace. A new belief or model—a new paradigm, has become absolutely necessary. This paradigm is collaboration.

Collaboration is Supplier Partnering

Partnering, especially supplier partnering, is a current buzzword for collaboration. Partnering is the process of two or more entities coming together for the purpose of developing synergistic solutions to their challenges. Supplier partnering is more a journey than a destination. No matter how well you think you’re currently engaging in partnering—you can always do it better! Partnering is both a mind-set and it’s an activity—a place where management, marketing, and philosophy meet.

Supplier Partnering Benefits

Many benefits from supplier partnering are obvious and some are not. Listed below are a few of the important reasons for you to embrace partnering:

  • For technological contributions or a competitive edge.
  • Competition from non-traditional sources has created a need to become more competitive.
  • Develop a market advantage and to increase distribution capabilities.
  • Risk sharing and financial stability.
  • Inventory control and automatic fulfillment for product sales and manufacturing materials.
  • Greater consistency in service and product quality and availability.
  • Better productivity and quicker response times.

Supplier Partnering Challenges

Along with the benefits of partnering, also come the pitfalls or land mines. Identifying these early will greatly increase your prospects of achieving effective partnering alliance relationships. Some of the more common partnering pitfalls:

  • Not making an organizationally complete partnering commitment, especially from executive suites.
  • Alliance partners having incongruent core values.
  • Alliance partners having unexpected inefficiencies or poor management, causing reduced partnering capabilities.
  • Resistance from employees on new methods of operation.
  • After entering into a partnering relationship, one partner unexpectedly pulls out leaving the remaining partner or partners in need.
  • Culture clashes among partners.
  • Complacent attitude or expecting others to complete the difficult or unpleasant activities.
  • Hidden agendas or unrealistic expectations.

In understanding the possibility for these calamities to arise, you can plan and organize your partnering agreements to hopefully eliminate these potentially dreadful occurrences. One of the best ways to guarantee failure is not to know your partner’s strengths and weaknesses. Knowledge of your partner is imperative for successful long-term relationships. In today’s unstable economic environment, you want the least amount of surprises possible. Depending on where you fit into the supply chain, as a manufacturer, wholesale distributor, or dealer/retailer, your needs and possibilities will differ.

Steps for Effective Supplier Partnering

Five steps for developing your buy/sale partnering relationships:

  1. Monitor. Study your business, observe, and identify areas for improvement. Also take inventory of core strengths that might be valuable to a potential alliance partner.
  2. Educate. Learn about those companies you might consider for partnering arrangements, arrangements that create a win-win result for all who participate. Ask yourself and your management team about their strengths and weaknesses? What effect would they have on our business? This is the time to study value based purchasing and to understand the difference between cost of an item and total cost of procuring the item.
  3. Select. This is the critical step because all your future efforts are built on this foundation. Select with knowledge, understanding and commitment. Surely there is little security built upon a flimsy foundation. Search for the strongest materials for your partnering foundation.
  4. Organize. Now you’re to the point of identifying, understanding, and putting together the possibilities for an alliance. This will be your not only your partnering structure but also your road map, plan it well. This is where you must determine if you are rewarding the correct behaviors in your organization. Are you making the mistake of rewarding your purchasing agents for obtaining the lowest item cost and not for the lowest total procurement cost?
  5. Charter. This is the agreement, whether it is a handshake (which I advise against) or contractually. I strongly urge all buy/sell-partnering alliances to put their agreements on paper—it’s so much more clear six months or two years later. Each party’s commitment to the other, on paper, will smooth a path through the potholed road of partnering. Also your charter should explain conflict resolution, as Murphy’s Law is sure to emerge. Be ready for it and the conflict will be resolved timely and amiably.

Qualities of Supplier Partners

Selecting your trade partners well will serve you and your company for years to come. To aid you in the search, I’ve identified many of the necessary qualities of a person, management team, or corporate culture with which to successfully build your alliance.

  • Wants to win. There is no intelligent reason to partner with a loser. This kind of relationship will only drag you or your company down to an unacceptable performance or production level. You and they must have a desire to win—to want to do better, to be useful in creating synergy with your partner!
  • They understand that they are still ultimately responsible for their own success. They understand the value of synergy and acknowledge that accountability goes both ways. Be careful not to always assume your partner is looking out for your best interest.
  • The leader and or contact must be an active listener. To truly keep in touch with the heartbeat of an alliance, active listening is critical. This helps you to know what you need to do extra and when the other side is falling behind in their commitment to you. Alertness from both sides equals mutual success.
  • Understands and cares about what drives their partner’s’ businesses. Because successful partnering is about synergy, you must consistently give the correct kind of value to the relationship. Regular Relationship Bank deposits are always required before withdrawals are possible. You can only offer value to the relationship by knowing what your partner’s business considers as being synergistically important.
  • Responds well to, and acts on, feedback. The only possibility for forward and beneficial movement occurs when leaders are willing to accept counsel. None of us are smart enough to know it all. Notice I didn’t mention criticism—it was intentional.
  • Flexibility, especially when events or circumstances are not what was expected. If you don’t have the ability to change direction when the road ahead is washed out. You’ll find yourself wishing for rescuers as you uncontrollably float down the stream. Flexibility is absolutely necessary because things will never be exactly as we expect.
  • Trust, integrity and respect for others. I found this to be the common thread weaving through an organization’s consciousness—from the factory floor to the executive suite.
  • Seeks win-win arrangements and solutions. Earlier, I stated that you must look after yourself, but if that is all you do, you’re of little value as a long-term buy/sell partner. You must win for the sake of your business. At the same time your partner must also win. This will develop a desire within them to want to continue in the relationship. The partnering advantage becomes stronger the longer the relationship lasts.
  • Understands that partnering is a relationship of interdependence, not dependence or independence. Visualize your partner and yourself as partially overlapping circles. The overlapping parts of the circles are your areas of mutual value. This overlapping area is also your area of interdependence.

Buyers and Sellers

Buyers and sellers, working together for mutual improvement is the great benefit received from partnering. Be careful of unrealistic expectations on one another. Too often one’s perception of disloyalty from a partner can in really be an unrealistic expectation. Communicate your needs, as both benefits and pitfalls are inherent in partnering. The benefits usually outweigh the challenges. Be careful and methodical in the search for alliance partners. Take care in carefully structuring the arrangement. Do this, and you will succeed for years to come. Remember—partnering is not instant gratification but rather a long-term paradigm for success.

How Today’s Distribution Partners Add Value (667 Words)

The supply chain has changed. Early in my sales career I learned the stock joke about sales people; they did the least and got the most. The same joke was told about the middleman wholesale distributor. Through the 1970s distributors were rewarded for whom they knew, for getting placement. This was because distributors could do the job (product placement and fulfillment) better than most manufacturers. Times were good; distributors were getting fat and happy.

During the 1980s the hint of change rustled through the distribution channel. Manufacturers started asking themselves, “Do we really need XYZ Distribution?” Most answered, “Yes.” But, some started making different decisions and went direct. I still remember when B&L went direct on the company for which I was a rep. I hated the >*#@%^*s. Times were changing and our country was becoming more national than regional. As the big box category busters came to life, distribution started to change. Distribution sacred cows went to the slaughterhouses because both manufacturers and users realized they had more choice than ever before.

As competition form offshore sources, global alliances and local partnering became apparent, many distributors were figuratively caught with their pants down. Many “fat and happy” distributors were enjoying the life, but not reinvesting in their business. Manufacturers were looking at world class manufacturing techniques but few distributors were doing the same in their area of the distribution channel. What does my little history lesson have to do with your life? Plenty!

Invest in Your Business

Over the last half decade I’ve researched and delivered alliance seminars to many distribution industry niches. The common thread I have seen is a general reluctance of distributors to invest in their own business. There are several reasons but it really doesn’t matter. In the end, if you can’t do it better than the manufacturer, who needs you? I know, you say, “What about loyalty?” Well, your manufacturers have been saying, “XYZ Distribution is not keeping up, we must not be important to them any more.” I realize I’m over simplifying a complex issue, and It’s not as complex as many want to make it.

Today, we are in the information age. I no longer have to get in my car and drive to the local library to get information.  Now, I simply do a few magic clicks of my computer mouse and more information is available on my computer screen than is in hard copy at my library. I still need information, but I no longer need the library. Users still need what you sell, but do they need you? Think hard before you answer the question. If you are not adding value, they really do not need you.

My primary market as a keynote speaker is trade and professional associations. For associations wishing to survive, I continually tell them that they better deliver value. They must deliver more perceived value to each member than the members are spending on their membership. People have more choices than ever before. People will migrate to where they believe they are getting the best value for their money. As a distributor you must be clear on this idea.

Value in Your Eyes, or Theirs?

What are you doing to deliver value? Really now? Are you sure those services deliver value? How do you know they deliver value? Who have you asked? Have you discussed value with your manufacturers? How about with your customers? In “Developing Strategic Alliances” I included a value update form. If you have not yet had time to read the book, here is the basic idea: Write down on separate sheets of paper the value you are getting from the relationship with each of your manufacturers and then the value you think they are receiving from working with you. Have them do the same thing, then switch. What an eye opener. Use the same idea with each of your customers. Now you will get a glimpse of what your manufacturers and customers consider as valuable. Now you can really do something about adding value to your distribution channel.

ABCs Of Buyer/Seller Relationships (1474 words)


Buyer-Seller Relationships

There are basically three levels of buyer/seller relationships. The first and most common relationship level is Adversarial. This is the traditional win-relinquish relationship where you, the buyer, squeeze your supplier for the very last bit of a discount. You are determined to get the last drop! You are not focused on the cost of doing business with one another, just what you believe to be the lowest cost. This is a transactional only relationship.

Next is the Barometric relationship. In a Barometric buyer/seller relationship you are always checking the atmospheric pressure. This relationship is still being monitored and measured closely. Generally you have not yet developed a high level of trust with one another. It could be a single source relationship, but with a short length contract. While this relationship can grow and flourish, it can also sour quickly. Few people thrive with others constantly peaking over their shoulder. In this type of relationship, each side must still engage in CYA (cover your assets).

The highest-level buyer/seller relationship is Complementary. This level is where true integral Partnering takes place. At this level the visions and values of each overlap with one another. There is a true alignment of values in place. Each understands the needs of their alliance partner and works hard to help their partner get what they need while likewise serving their own organization.

  • Value-based purchasing,
  • Sole-source relationships,
  • Vendor Managed Inventorying (VMI),
  • Just-in-time (JIT) shipments are made successful through trust and
  • Electronic Data Interchange (EDI) at this relationship level.
  • Complementary Contractor/Distributor Relationship

An example of Complementary buyer/seller Partnering is the relationship Universal Systems developed with Graybar through Graybar’s local branch. Universal is an electrical contracting company and Graybar is a distributor of electrical supplies.

In 1996, Gene Dennis, President at Universal Systems realized his company had a problem. His supply inventory was out of control. Through the assistance of Parviz (Perry) Daneshgari, Dennis set out to make a change. Daneshgari is president at MCA, (an implementation company in Michigan), an adjunct professor of automotive engineering science at the University of Michigan-Dearborn and Oakland University’s School of Management and the author of The Chase, (1998, Black Forest Press, San Diego, CA) a business novel about process implementation. Dennis decided he wanted to be a construction company without owning and handling any material. This was a lofty goal as traditionally the stocking of electrical supplies was a cornerstone of the business.

He needed a supply partner. His choices were a local supplier and Graybar, a national supplier with a branch in his community. He leaned toward the local supplier until he showed up at their place of business unannounced. “We were held hostage,” said Dennis (Electrical Contractor Magazine, July 1998). The problem was that the president was not in and the employees didn’t know what to do so they put Dennis and his team in a conference room. In contract, when he showed up at Graybar unannounced and the branch manager was out, all the employees knew about Universal looking for a supply partner. The staff at Graybar showed him and his team around at once. Upon closer inspection, Dennis learned that Graybar’s on-time deliveries had been 29 percent higher than their competitor. Graybar was selected for the sole-source arrangement.

Graybar agreed to take ownership of Universal’s existing in-site inventory. An on-site inventory was maintained and orders were placed via Graybar’s EDI system and invoices were generated from Graybar’s St Louis headquarters monthly. Universal realized approximately $60,000 the first year through eliminating delivery trucks, inventorying and other personnel savings. Graybar offered additional benefits as the relationship progressed. Before the partnership, Universal had to pay extra for shipping their frequent emergency orders. In the partnership Graybar maintains a standard list of commodity items at the local branch and if they don’t have it, Graybar pays the shipping.

What’s in it for Graybar? “Instead of wondering how to get the order, now we sit in on job meetings, try to find ways we can help, and look for cost and process savings,” says Jim Estis, a local Graybar account representative (Electrical Contractor Magazine, July 1998). Chatting with Dennis late October 1999, he said, “Partnership is covering the backside of each other—each looks out for one another.”

The following are Daneshgari’s steps to form a vendor partnership and criteria for selection, which Universal Systems used. Dennis and Daneshgari outlined these when they presented their success story at the 97th Annual National Electrical Contractors Convention in Las Vegas, Nevada, October 1998.

Steps to form a partnership:

  1. Develop a scope of work.
  2. Send out requests for proposal and interview potential vendors.
  3. Review proposals.
  4. Create a short list.
  5. Make unannounced tour of vendors’ facilities.
  6. Evaluate finalists.
  7. Selection.
  8. Negotiate an agreement with your selected vendor.

Criteria for Vendor Selection:

  1. Purchase existing stock at retail value.
  2. Establish a branch at Universal Systems.
  3. Have an inventory management system.
  4. Work toward continuous improvement process.
  5. Use EDI for billing.
  6. Have a delivery process.
  7. Use periodic evaluation process.
  8. Contract termination clause.
  9. Product warranty and liability.
  10. Maintain property damage insurance.
  11. Aggressive pricing strategy.
  12. Maintain stocking inventory.
  13. Maintain workers’ comprehensive insurance.
  14. Offer single point of contact.

(Used with permission of Parviz (Perry) Daneshgari)

Complementary Distributor/Manufacturer Relationship-Fuji Factor

Fuji Photo Film U.S.A, Industrial Imaging Group has the right idea. They are true partners with their distributors. Fuji Photo Film is a manufacturer that supplies the graphic arts industry, supplies for printers. Among the major suppliers to the industry, Fuji is by far the most advanced in building quality relationships with their dealers. Much of the success is attributed to Stan Freimuth, president at Fuji.

The Fuji factor is a model that more manufacturers should embrace and more purchasers should demand of their suppliers. If you were a distributor, wouldn’t you rather have a supplier relationship that could grow and improve over time? This is only possible with the right kind of supplier. The key elements to Fuji’s success are as follows:

  • Limited number of dealers offering their products to their market. While approached by virtually every non-Fuji dealer (distributor) in 1997 due to industry manufacturer consolidation and pressured to add their preferred dealers by national accounts, Freimuth had to make some hard decisions about his dealer network. He responded, “The net result of all this has been minimal changes to our dealer network. As most of you know, we have pretty tough standards that must be met before we will sign on a dealer. We only want strong, well-run companies who are willing to do business the way that we want to do it, and be complementary to our existing dealers.” (Access Fujifilm Graphic Systems Division newsletter, Fall 1997)
  • Manufacturing products of the highest quality with zero defects as the norm.
  • Builds tight relationships with their limited dealer network. In his letter to distributors, Freimuth states, “Last month the Graphic Systems Division hosted the Partnership 98 Conference in Greenville/Greenwood, SC. As many of you already know, this is a meeting where key dealer personnel (whether they be field sales reps, branch managers, electronic imaging reps, etc.) meet and interact with members of the GSD [Graphic Systems Division] management staff. It’s a chance for all of us to listen to each others concerns, get to know each other better and tour our state-of-the-art manufacturing facility in Greenwood.

We have been doing Partnership meetings in one form or another since 1992 and I am still impressed each time by the interaction between our two groups. At that first meeting in 1992 I remember the overriding sense among the attendees that we were all helping to shape something that was completely different in our industry. The concept of a manufacturer/dealer meeting with a free and open exchange of ideas (let alone mutual respect for each other) was unheard of at the time.” (Access Fujifilm Graphic Systems Division newsletter, Spring 1998)

  • Seeks constructive feedback from their dealers and acts on the ideas shared.
  • Consistency of leadership; Freimuth has been the president since 1983 when Fuji opened shop in the United States. Other companies in their industry have had numerous changes in leadership during that same time period.
  • Accessibility; several dealers attested to the fact that they could pick up the telephone and easily reach Freimuth.
  • Trust; when I asked about building quality relationships with his dealers (Spring 1999), Freimuth said, “It doesn’t come easy, it’s hard work.”

Regardless of the scope of your relationships, work with your suppliers to build Outrageously Successful Relationships. The Complementary relationship level may take longer to develop than you may hope, but the close relationship delivers value. This foundation will allow you to PartnerShift throughout your organization and benefit from your effort.

What Suppliers Say About Buyers (850 words)

What Suppliers Say About Buyers

What are they saying about your company?

I recently delivered a “What Suppliers Say About Buyers” partnering presentation to the National Association of Chemical Distributors at their annual meeting. A couple months before the meeting, I visited the convention chair, Pat Marantette, at his Southern California business, E.T. Horn Company, to learn more about the industry. One of the things he told me was that he was more concerned with the relationships with his suppliers than the relationships with his customers. He went on to explain to me that without his suppliers, he was out of business.

In thinking back on the visit, asking how important are suppliers to your business success is an important question. The following is excerpted from my latest book, PartnerShiftHow To Profit from the Partnering Trend. I believe you’ll be asking yourself questions in reference to the relationships you enjoy, or do not enjoy, with your suppliers.

At the Building Service Contractors Association International’s 1997 Chief Executive Officer Seminar in Los Cabos, Mexico, one of the suppliers to the industry was assigned to present a presentation based on what the suppliers in general said they did not like about the contractors, their customers, actions. While Rob Kohlhagen, senior market development manager at SC Johnson Professional delivered an exceptional presentation, I’m not sure he ever forgave me for assigning him the task. Admitting the comments came from only one industry, I believe they are universal, as they have applied to most of the industries that I have counseled or studied.

Power manifests through knowledge. It is important to know what your suppliers have to say about you. Completing Relationship Value Updates are important, as they will help you to avoid some of the following problems and open a conduit for communication. Remember, you can learn from another industry’s problems. Below are listed the three general areas of complaint from the contractors’ suppliers. Also there are some of the specific comments offered about the contractors. Their comments point out universal issues that suppliers have with their buyers. Most will apply to your industry. If you explore issues you might have with your own customers, there is a good chance your suppliers could have similar issues with you.

       Fear of commitment

“They are not willing to single source but still want our total bundle of value-added resources at no additional cost.”

“They focus on reducing price rather than reducing cost.”

“They like to shop around regularly to satisfy curiosity . . . they are afraid that we will abuse the relationship.”

         “They want direct prices but local service.”

         Operations level support

“We get commitment from top management but the program gets derailed at the operations level.”

“Top management is reluctant to mandate changes to operations . . . they try to build consensus but it doesn’t happen.”

        “Operations people have their ‘personal favorites’, old recipes they swear by that they will do anything
to hold onto (including sabotaging the partnership initiative).”

“The partnership is conceived at the executive level but the lower level departments are never convinced that it is in their best interests too.”

        Communication breakdown

“Everyone is so busy we only communicate when there is a need for fire fighting . . . hence the relationship takes on a negative tone over time.”

“We never discuss mutual opportunities . . . it’s always, “How do we fix what isn’t working?’”

“We talked about the importance of communicating at all levels: executive, operations, purchasing, training, risk management and quality assurance but there is no structure established to make it happen . . . so it doesn’t.”

“The chemical supplier cannot partner independently with the building service contractor. There is an interdependence between the chemical and equipment and supply manufacturers but there is no communication link established between us.”

Interdependence is an idea that carries much power. From the Harvard Business Review, July/August 1994, “Active collaboration takes place when companies develop mechanisms, structures, processes, and skills for bridging organizational and interpersonal differences and achieving real value from the partnership. Multiple ties at multiple levels ensure communication, coordination, and control . . . more communication than anyone anticipated is necessary.”

Thomas Gale, editor at Modern Distribution Management, has his opinion about the integrity of some customers. From the November 10, 1994 issue, “And while many customers are talking about integrated supply partnerships, there are (and will always be) customers that are ultimately seeking price reductions, playing one distributor off another, without a willingness to explore how a true partnership can save money for the customer while providing a fair profit for the distributor.”

Developing a conduit for communication is not difficult but frequently overlooked in many industries. The Internet makes this even easier. Some industry associations are providing this service through members’ only sections on their web site. More trade and professional associations are helping to create this type of multi-function participant forum, but not enough. This area is a tremendous opportunity for associations to add a very high-level of value for their members. Continue the dialogue with all stakeholders in your business.