A key to competitive advantage
Procurement process re-engineering brings better results and more savings for companies that seek to extend it to the entire procurement value chain rather than to their in-house procurement function. That essentially entails putting the whole procurement process under scrutiny, and moving from a large number of suppliers towards developing a partnership approach with a selected group of trusted suppliers.
Better and closer supplier relationships can help companies reduce costs, cut down waste and discover hidden efficiencies in their procurement value chain. A collaborative approach enhances supplier loyalty and helps build long term win-win solutions. Higher levels of trust and loyalty can be used to build integrated procurement platforms with collaborative information sharing, a sure source for competitive advantage.
Collaboration has a synergistic effect on all partners along the value chain. The idea is to integrate core competencies of your business with those of key suppliers possessing complementary competencies with the goal of creating a business model that results in a more competitive value chain. In other words, a collaborative approach essentially means forging a common path integrating your supply chain management system with that of the supplier’s operations, outbound logistics, marketing and sales, services and their customer expectations management system.
Closer supplier relationships lead to better responsiveness and agility from your supplier-partners. Your company will also benefit from supplier transparency and improved accountability. Better reliability results from a collaborative approach because the suppliers can count on better prospects for themselves when your business prospers. This level of commitment is difficult to achieve when suppliers see themselves as just one among many, leading to their looking out for themselves and looking at the relationship transaction by transaction. In contrast, a collaborative approach encourages a strategic perspective in the chosen supplier-partners.
What it takes
In his book, What the CEO Wants You to Know, the renowned author and management consultant, Ram Charan, describes a company that has its act together, in this way:
“A synchronized organization is like a champion rowing team–people working together with a certain rhythm that allows the group to do things the individuals cannot do. Synchronization expands the capacity of the whole group.”
If you extend this analogy to collaborative partnerships, it becomes clear just what it takes to derive the potential synergies from collaborating with firms in your procurement value chain. A synchronized collaborative partnership would have people in both organizations working together to a certain rhythm that allows the partnership to achieve things each firm cannot achieve on its own.
Getting a collaborative effort synchronized to the stage of a champion rowing team takes effort and commitment. It will not be easy; nor will it be smooth sailing all the way. But, it is an immensely challenging undertaking that when achieved make it definitely worth the effort.
For collaborative arrangements to succeed, both the buyer and the supplier needs to strongly believe that there is a better way of doing things, that more can be achieved than at present, leading to mutual benefits.
Collaboration will work better when both parties seek to drive out waste and enhance efficiencies in the supply chain, bringing with them a willingness to work towards common goals for improving the present system. Commitment from the highest levels of leadership in both firms is imperative for such an approach to take root and deliver results.
Better communications at all levels-rather than the supplier sales people with buyer’s purchasing people-can be a foundation for building integrated systems, from planning and forecasting to better lead times and higher levels of overall responsiveness.
A closer relationship fosters a culture of sharing key information up and down the supply chain, enabling proactive and speedy decision making as well as in troubleshooting. The Deepwater Horizon-BP fiasco in the Gulf may not have occurred had there been better and closer relationships and a collaborative attitude.
The end result
It is necessary to remember that the end result of any re-engineering effort should be to achieve better and more efficient processes. A procurement process re-engineering effort that involves collaboration with a selected group of trusted suppliers should provide you with better results in one or more of the following core value metrics:
- Cycle time
Collaborative planning would also inevitably improve performance and costs for both parties and reduce transaction costs in the long run. While the collaborative efforts may necessitate bearing additional costs to get a common information platform in place to facilitate real-time sharing of operational information, these costs would be more than compensated for with the synergies that can be gained from closer collaboration in procurement.
The ultimate benefit however, is the ability to enhance your edge over competing value chains. This is what enables you to pass on better value to your customers or clients.
For success, collaborative partnerships with suppliers require:
- A strong belief by both parties that there is a better way
- Both parties to seek drive out waste and enhance efficiencies
- Common goals for improving the present system.
- Commitment from the highest levels of leadership in both
- Better communications at all levels
- A culture of sharing key information
Let me know what you think and your experience in this area….