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PartnerShift-How to Profit from the Partnering Trend

PartnerShift—How to Profit from the Partnering Trend (1471 words)

PartnerShiftWe need banking, but do we need banks? We need groceries but do we need supermarkets? We need services and consumables but do we need to receive these things in traditional ways? Do we need your organization?

The answer is: Only if your business truly creates value in the process of helping others to get the stuff they need, want and desire. At my seminars, when I ask business owners what their product is—unfortunately, the answer is usually WRONG! Wal-Mart has done an excellent job of disintermediating those that Sam Walton believed did not add enough value to the chain. What about your customers and suppliers? What do they say about you?

My research indicates that for you to cost effectively achieve world-class levels of production, distribution and services, you must adapt Total Organizational Partnering. I realize partnering is a term that has been grossly abused over the last decade, none-the-less; it is what you must achieve.

Partnering is an idea that is loosely used to describe anything from teamwork to alliances to contractual partnerships. Partnering, as I define it, is the process of two or more entities coming together for the purpose of creating synergistic solutions to their mutual challenges. Again, I recommend you adopt Total Organizational Partnering as your business strategy.

Partnering is not a flavor-of-the-month management strategy to be hastily adopted and then as quickly abandoned, rather a long-term strategy for success. Partnering is not instant gratification! To adopt Total Organizational Partnering, you’ll need to understand the Partnering Pentad Model. A pentad is simply the name given to a group of five. The Partnering Pentad represents the five key areas of your business. In each of the five areas you must develop outrageously successful relationship (alliance) strategies. It is the quality of these relationships that hold all the areas together. Once in place, you’ll have Total Organizational Partnering.

  1. Strategic External Alliances is the area of your business where you develop alliances with outside entities for activities where you have core competencies that complement one another. For many, these include buying/marketing groups and targeted specialty alliances for software/technology development. By sharing core strengths, tow or more can create an environment of synergy yielding all involved more than the some total of their collective contributions. Land mines to watch out for are core values of alliance members being too different; circles of interest overlap being too little, and continual management change of one or more alliance partners.
  2. Supplier Alliances is the area that many organizations are most concerned—no supplier, certainly no customer. Just-in-time delivery (JIT) and electronic data interchange (EDI) ordering have become commonplace today. Eventually, you will have these relationships both up and down the supply chain—providing you are still in business. Frequently, what I here from suppliers about their customers is, “They’re talking marriage but acting one night stand.” Not long ago I delivered an opening keynote presentation to an association of industrial distributors. Unfortunately, upon visiting the web site of one of that industry’s major suppliers, I noticed that very few of their distributors had hyperlinks to the distributors’ own web sites. I call that incredibly stupid—missed opportunity. To successfully compete in the world of B2B e-commerce, you must adopt alliances. The biggest land mine in this area is to neglect reviewing the quality of the relationship and exploring areas for improvement. What is it that you do that your suppliers cannot? Which of your activities actually adds value to your suppliers’ efforts and desire to get their goods to the end user?
  3. Customer Alliances weigh heavy in determining your total volume and profitability. In this area, you must be externally driven. Your customers will consider you an important vendor as long as they feel they’re receiving good value. Value-added is a term that much is being written about. Integrator, Applied Distributors, is now documenting their value-added services with their customers. Agriculture and food processing conglomerate, Cargill has moved to value-based purchasing. They measure the total value proposition of their suppliers rather than just buy on price alone. You must be value driven rather than product driven to understand what your customers want. What they perceive as value is their reality. The important land mine to watch out for is short-term thinking on your part when making customer relationship decisions.
  4. Employee Alliances to many, is a non-issue. Meaning, they don’t. What motivated the WWII generation is different from what motivates baby boomers and is different from what motivates the GenXers. Just because something motivates you, it doesn’t necessarily mean it will motivate those of a different generation than yours. If you want your employees to have an ownership in your business—even though they don’t have a legal ownership and to hold sacred the business as you do—you must empower your employees.  Empowering means giving them the authority and encouraging them to accept the responsibility to do the job. Then acknowledge their successes and failures in an environment of safety—one where you encourage and reward risk taking. The major land mine to watch out for is the Ego Trap, yours of course. To give power, you must be a powerful person, one who possesses personal power rather than power simply acquired from your position. Permission cards and employee recognition certificates are a great start. More on these ideas are available at https://rigsbee.com/business-growth-through-strategic-alliances/ 
  5. Owners or CEOs as the Optimal Partner is the final and in many ways the most important leg of the pentad star. Not the most important from the perspective that all revolves around you, but that of having a culture of true partnering. True partnering start at the top. You must lead the charge and show by your actions, more than your words, that Total Organizational Partnering is truly your preferred and accepted business strategy. The critical land mine here is when you arrogantly believe that you are at the center of the pentad and that all the alliances should revolve around you. The coveted center of the pentad star is reserved for all the relationships that bind the separate legs.

Globalization is the primary driver behind Partnering Alliances. Large multinational companies are building alliance relationships to gobble up market shares in every conceivable industry and location. Large families of businesses are competing against one another. As such, smaller organizations feel the pressure and the Partnering trend becomes monkeys see, monkeys do. A secondary driver is based on the fact that organizations generally adopt a new paradigm based on the recommendations of others. Change evolves through one’s witnessing the success of others. Organizations and leaders with strong reputations within an industry or economy have immense influence over their contemporaries.

While I have witnessed many companies profit handsomely from alliance relationships, I have also seen them scramble to get on the partnering bandwagon with little regard for the quality of partners they select. Admirable businesses like Timex have discovered that the wrong partner can cost millions of dollars. Creating successful Partnering Alliances that will pay off in terms of increased market share, know-how or earnings diversification is no easy chore.

Today, consolidations and rollups are of great concern to many. In an issue of Industrial Distribution, Bill Wade stated, “The basic premise couldn’t be any simpler. Take a highly fragmented industry—like distribution—facing technological change, customer upheaval or chronic financing difficulties. Add in a few well-healed foreign firms or, worse, a couple of previously unknown competitors from outside the business. Since the industry leaders are probably family-run businesses with limited succession strategies, the next step to protect profit and continue growth is clear: consolidate.”

A consolidation or rollup, as it’s frequently called, generally occurs when an organization or individual with deep pockets sets out to buy several small companies in a fragmented industry and rein them in under a new or collective pennant. Does this sound familiar? In 1997 the National Association of Wholesale-Distributors reported that 42 of the 54 industries they studied had been significantly affected by consolidation. Frequently a professional management and buying strength create economies of scale that allows the consolidator to pluck the low hanging fruit in the industry. They will invest significantly in systems to eliminate the duplication of effort and inefficiencies that exist within the industry being consolidated.

If your organization is sick and bleeding, this plan will not deliver the quick results you most likely desire. As I stated, this is not a quick fix. If you lead a healthy organization, your best strategy to remain profitable and independent is Total Organizational Partnering. To protect against being disintermediated, stable and incremental improvement in all five pentad areas will deliver the most successful long-term results. Total Organizational Partnering will assist you in becoming a world-class distributor—one that adds value to the chain and understands logistics.

ABCs Of Buyer/Seller Relationships (1474 words)

Buyer/Seller

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.