Why collaborate with suppliers?
Collaborating with your key suppliers can fuel your growth, differentiate your products and improve speed to market. They have great innovation potential, because they know what is important to you, their customer.
If they don’t know enough about your strategy and goals or how your operation works, you have a lost opportunity.
The global consumer company, Unilever says, “a significant portion of our growth will come from innovation, delivering leading-edge products into the marketplace. We anticipate that around 70% of our innovations are linked to working with our strategic suppliers”. If it works for them, it can work for you.
Related: To Tender or Not to Tender?
Conflict in the relationship limits innovation
The main areas where companies limit suppliers’ ability and motivation to help you innovate are:
- When we place pressure on a supplier to reduce prices, we create unnecessary stress, creating friction. Asking for a price reduction without considering what drives their costs irritates them. It also limits the extent to which you will benefit from suppliers’ ideas for product or service improvement.
- Where there are conflicting objectives in your company’s functional areas, e.g. sales, procurement, accounts and research and development. These conflicts put the supplier in a compromised position making him less likely to want to engage with you any more than he deems necessary.
- Being demanding and asking the supplier to make unreasonable, excessive and late specification changes to his offer, often without any regard for the resources he needs or how changes may affect delivery dates and quality issues.
3 ways to help your suppliers innovate
- Educate your suppliers about your internal processes, especially product development and administrative systems
- Share ideas, plans and information with suppliers
- Work with suppliers to improve their competitiveness in both cost and quality.
Companies should involve suppliers in the early stages of product development where suppliers may provide design suggestions and help commercialise products. Also, slow or unresponsive systems and processes causing suppliers to be paid late are really aggravating. Have a process for escalating problems. Then ask your suppliers about how you can improve their experience in dealing with you.
As suppliers become more involved in and knowledgeable about your company’s needs, plans and strategies, they will feel more secure in their relationship with you and they will be more inclined to work on innovative activities.
Treat them like partners and they will act that way. This increased collaboration won’t happen, however, unless we communicate clearly sharing both expectations and technologies.
Related: Can productivity tools help me?
Demanding lower prices and higher quality from suppliers without understanding their cost drivers, is a no-win for both sides. Working together to take costs out of the system by understanding the issues is the recommended route that requires openness and honesty from both parties. Suppliers are motivated to invest in innovation efforts when they can see what’s in it for them, such as better competitiveness.
Get the basics right
Smooth day-to day operations are the foundation of everything that can be achieved in a supplier relationship and so focus on the essentials. Moving away from an adversarial relationship is not easy, it may be necessary to question and revise some existing practices. Open the lines of communication and listen well. The results will be well worth it.