| Expert Insight: Guest Contribution |
By Tim Albinson,
CEO, Aravo Solutions |
Date:
September 16, 2009 |
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Memo to the CPO: Five Tips for Improving Supplier Relationships in 2010
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Usual Recession Survival Tactics Tapped Out? Shift Focus to Different Facets of the Supplier Relationship
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It’s no surprise that this deep recession has forced Chief Procurement Officers (CPOs) to significantly modify their purchasing imperatives. Cost reductions are high on the sourcing agenda, and according to a recent CapGemini CPO Survey, average savings targets have more than doubled over the past year -- from 4% in 2008 to 8.6% in 2009. At Aravo, we know companies whose targets rose even more, from 8% to 15% -- and from what we hear, they are likely to climb higher still, at least another 3-5%.
How can CPOs meet new challenges like these? Most have already made the obvious adjustments - aggregating spend, changing specs/service levels, shortening contract terms, streamlining staff, etc. What more can be done in 2010?
From my perspective, the answer to that question is simple: focus your attention on supplier relationships.
Without a doubt, the recession hit hard. And, if your procurement team took a slash-and-burn approach to contract renegotiation and/or used other heavy-handed or quick-fix tactics, you may have jeopardized valuable long-term supplier relationships. In a time like this, traditional adversarial approaches prove ineffective when each side must commit its best people, capital and technology to ensure mutual success. It’s time to start thinking more strategically about your suppliers. Aravo is seeing the most innovative sourcing departments viewing suppliers as business partners, rather than business opponents.
Need a little help to get started down this new path? Here are five areas of supplier relationship management that CPOs can improve in 2010:
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Move Your Supplier Relationship Beyond the Transactional |
These days, suppliers are eager to work with you to solve complex problems, such as trimming costs and achieving excellence benchmarks in lean-and-green development and delivery. Why not challenge each other to think beyond conventional solutions and methods? Even supplier relationships that are purely price-based contain untapped knowledge. For instance, don’t struggle to identify effective, yet inexpensive ways to ensure lead-free and RoHS compliance across your supplier base. Instead, find best practice tips by surveying key suppliers.
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Streamline Decision Making
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Invest in maintaining the right contact information in your supplier information management system. After all, updated and accurate data is critical for the rapid communication flow that feeds innovation. One new client of ours had valid contact information for only 6% of their 400,000 suppliers.
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| Systemize the Relationship |
Establish a 360-degree information system and mitigation/corrective action plan to ensure relationship survival beyond current assigned teams. Include agreed-upon key performance indicators, risk monitoring, and protocols for open communication and transparency.
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| Innovate, Don't Formulate |
Don’t just copy Wal-Mart, Toyota, and Dell. Your situation is unique. Analyze it, and identify areas for improvement. A formulaic approach to supplier restructuring might mean reducing total number of suppliers by 20%, but some innovative Aravo clients are now increasing the number of suppliers to encourage competition for lower pricing.
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| Pick Up the Phone |
We are always surprised at how few companies talk to their suppliers on a regular basis. Site visits are optimal, of course. But, in today’s economy, everyone is cutting back on those. So, it’s even more important to check in with your suppliers personally, even by phone. Personal relationships are fundamental to collaborative supplier relationships.
As we dig out of this recession, all eyes are on CPOs to help even out shrinking financial balance sheets. For some companies, survival depends on approaches based solely on price. But, if you have tapped out all the usual tactics, it’s time to shift your focus to different facets of the supplier relationship. By thinking strategically, and using data transparency and collaborative information sharing, it’s likely you’ll uncover hidden cost savings originating throughout your supplier network.
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Agree or disgree with with our guest contributor's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the website. Upon request, comments will be posted with the respondent's name or company withheld.
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About the Author |
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Tim Albinson is Founder, CEO, and chief visionary of Aravo Solutions. With a technology background dating back to the early 1980s, he has held cross-functional positions in marketing, product strategy, and sales management.
Mr. Albinson has been an advocate for conservation and sustainability for over two decades, and has worked with organizations including World Wildlife Fund, The Nature Conservancy, American Forests and Fundacion Natura, Ecuador’s leading conservation group.
Mr. Albinson holds an MBA from the Haas School at the University of California at Berkeley. He also holds a BA in English literature from the University of Colorado at Boulder.
For more information visit: www.aravo.com or email:info@aravo.com
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Albinson Says: |
 Don’t just copy Wal-Mart, Toyota, and Dell. Your situation is unique.
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