Building Trust
Citation for this title: O’Brien, Jonathan. ( © 2018). Supplier relationship management: unlocking the hidden value in your supply base, second edition. [Books24x7 version] Available from http://library.books24x7.com.lopes.idm.oclc.org/toc.aspx?bookid=141413.
Chapter 13 - Strategic Collaborative Relationships
Supplier Relationship Management: Unlocking the Hidden Value in Your Supply Base, Second edition
by Jonathan O’Brien Kogan Page © 2018 Citation
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Building Strategic Collaborative Relationships Granovetter (1985) suggests we get partners who will work with us by having effective relationships. We don’t make personal relationships work by doing a regular review of performance or agreeing a development plan. All of these have their place otherwise I’ve just wasted my time writing this book, but they are all mechanical means to manage a relationship; the real power in developing effective supplier relationships comes from social interaction, carefully selected with the right suppliers, just as we select who we will build a relationship with in real life, to help us achieve our outcomes.
If we create strategic collaborative relationships with our most important suppliers then we can unlock great value, so surely we should just get on and do it? Indeed we should but just doing it is not a matter of flicking a switch. Across much of the literature on SRM or related topics there is general consensus that joint working and collaborative relationships with shared goals is what is needed, but there is precious little on how you actually do this in practice.
As with any relationship, it cannot just be turned on, it needs to be courted, pursued, built and reinforced with consistency and persistence. Both sides need to want it and need to invest in making it happen.
Remember that companies do not hold relationships with companies, but rather individuals in companies hold relationships with individuals in those other companies. This is a crucial point as it means that strategic collaborative relationships are founded upon the relationships between individuals but supported and coordinated by companies and all with the right motivation to build such a relationship. Trumpfheller
and Hofmann (2004) suggest effective relationships, and the performance possible through them, requires commitment and trust from the individual, communication and transparency from the organization together with coordination and technology; all interdependent and necessary for performance. This is a useful model; however, commitment is much more than a single factor and is needed not just at an individual level but also by the organization, and parties need to be willing and motivated to want to build a relationship. Commitment is a product of other factors, for example if we build trust we build commitment (Chao el al, 2013). Motivation drives commitment also.
Commitment is therefore central to strategic collaborative relationships, but this alone is not enough. Parties also need to cooperate and collaborate and by doing so motivated individuals and organizations turn the intent that commitment represents into results. Where parties have the choice as to whether or not to attempt to build strategic collaborative relationships then the non-coercive power of parties entering into a voluntary arrangement naturally promotes cooperation between them whereas an arrangement where parties are forced to work together breeds conflict (Skinner et al, 1992). Eliciting cooperation and collaboration as well requires a degree of stage management, but if the conditions are right this will naturally happen.
To bring this together, strategic collaborative relationships are enabled through the interdependency of individual, organizational and motivational factors; these are: trust, consistency, transparency, coordination, communication, the potential benefit to parties and alignment of goals. Together these factors converge to create real commitment and from that collaboration that leads to performance, achievement and longevity, or whatever parties seek, is realized. This entire framework is enabled through careful selection of the individuals involved in the relationship, so they have the right characteristics and personality, and through appropriate organizational structure and resourcing. This model is given in Figure 13.2and is expanded in the following sections.
Figure 13.2: The interlocking components of strategic supplier relationships
Individual: Trust, Consistency and Sharing
Hausman and Johnston (2010) define trust as ‘confidence in the integrity and reliability of another party, rather than confidence in the partner’s ability to perform a specific action’. They also state that trust between partners constitutes one of the key factors for becoming long-term partners. Chao et al (2013) describe trust as an important factor in relationship exchange and Kwon and Suh (2004) suggest trust is a central feature of a strategic partnership. Nyaga et al (2010) suggest ‘trust refers to the subjective belief that partners in a relationship will fulfill their obligations and thus positively influence both parties in a relationship’. Trust exists where one party has confidence in the other’s reliability and integrity (Morgan and Hunt, 1994) and Tangpong and Ro (2009) suggest trust is the major differential component in facilitating relationship continuance.
Chao et al (2013) suggest a number of factors that lead to trust include: § communication and information sharing; § the perceived benefits by parties; § relationship tenure – the more long term a relationship is the more likely that trust
will exist; and § asset specificity – the transferability of assets that support a given transaction, in
other words if a relationship involves the transfer of assets or investment in assets in a partner to support a piece of work then this is a visible and demonstrable level of commitment that builds trust.
Chao et al (2013) also suggest that behavioural uncertainty kills trust, but rather if we are consistent, at both an individual and organization level, we can build trust. Poor information sharing leads to behavioural uncertainty, but also consistency is about being predictable and always acting in the same way, in line with some definition of good practice, an organizational code of conduct or personal beliefs. Consistency is a source of personal power; if someone is consistent you know where you stand with them and know what is or is not appropriate. In my career, the people I have respected the most are the ones who were always consistent and fair. The same is true of relationships with suppliers, if we are consistent in our dealings with them they will trust us more, even if they don’t get the result they seek. Here our egos can get in the way. Imagine a supplier who flatters us and builds a strong rapport, then the supplier becomes a bit closer than they were previously and gets into a position to help us determine what we need so they are lined up. Here we have in fact given the supplier the power. Instead, being consistent here, perhaps by never faltering from a predictable set of behaviour that would rebuff this attempt or always following a prescribed code of conduct, then we retain the power of the relationship. The supplier may fail to get what they want, but the process will build trust. Furthermore, consistency is compromised by individualism. Individualism is culture specific, but is the degree to which we act for the benefit of ourselves (as opposed to society or a collective group). In all relationships people make irrational decisions (King, 2012) and individualistic behaviour fuels this, but if we are visibly acting on behalf of a company and all our actions are always aligned with a more collective objective and behaviour then this demonstrates consistency which also builds trust.
So trust is pretty fundamental to strategic relationships. Trust tends to operate between individuals but shapes the overall culture of a firm – we may feel entirely comfortable with an informal arrangement between our firm and another, yet this comfort will be based upon a degree of trust with one or more key individuals. If trust exists then this in turn has a positive impact on a relationship. Trust builds commitment (Chao et al, 2013) and helps relationship tenure and continuity by positively reducing the likelihood of the relationship being dissolved (Tangpong and Ro, 2009).
Finally, sharing by individuals is key to building effective strategic relationships. Communication is called out as an enabling factor for the organization, but at an individual level we need more than communication, we need sharing where individuals proactively and freely exchange information that is both relevant and appropriate to the relationship. This might seem obvious yet actually remembering to do this day-to-day can in practice be difficult and so requires us to adopt a ‘sharing mindset’. This only happens if we believe in the relationship and make a clear and conscious effort to share what is important.
Personality and Behaviours in SCRs
If the means to build relationships between companies is through individuals (Granovetter, 1985), then the personality and characteristics of these individuals is of crucial importance. There are two dimensions here:
§ Personality – our personality, pretty much set and defined from birth but influenced to a degree by our environment, especially in early formative years.
§ Behaviour – how we behave. We can choose our behaviours, even those that are heavily influenced by our personalities and we can develop competencies that enable us to interact with others and secure the outcomes we need.
This means we ideally either need to select and recruit those who will manage strategic relationships based upon the required personality profile (as well as the right fit and experience) or those in such roles should understand who they are and be able to adapt behaviours for the situation. Ensuring the right match of individuals to strategic relationship management roles is of great importance. If we fail to do this the relationship would be sub-optimum. For example, an individual who is not outgoing and introverted might struggle to use voice with a supplier to discuss issues. An individual who is not agreeable might fail to build the rapport needed to ensure a relationship prospers. Ensuring that those who are entrusted to manage very important supplier relationships have the right personality traits or can demonstrate adaptability where there are differences is crucial.
COW SOAP ACE Can Help
The COW SOAP ACE framework (Figure 13.3) represents the personality types that are given (COW SOAP) and traits we can influence (ACE) that are relevant to a greater or lesser degree for any supplier interaction. It was developed specifically to match personality and behaviours to specific supplier negotiations using portfolio analysis as the determinant (the model is expanded in full in my second book Negotiation for Procurement Professionals). The COW SOAP ACE traits most appropriate for a strategic supplier relationship are given in Figure 13.3.
Figure 13.3: The COW SOAP ACE traits most appropriate for a strategic supplier relationship
For the ACE traits, both assertiveness and conflict style need some further explanation in the context of strategic supplier relationships. Assertiveness is a core skill and highly necessary for supplier interactions, especially if we are conducting a leverage (portfolio analysis) negotiation. In a strategic collaborative relationship assertiveness is also necessary but in excess can work against the relationship. Tangpong and Ro (2009) suggest that assertiveness leads to opportunistic ‘concern for self’ behaviour to the detriment of relationship continuance but instead cooperativeness leads to a fall in
opportunism and therefore a rise in trust and the right conditions for relationship continuance. Therefore individuals must be able to moderate their assertiveness and choose when to be assertive but must also be able to collaborate first and foremost.
This leads us nicely into conflict style where we return to the Thomas–Kilmann (TKI) conflict mode instrument that we first explored in Chapter 11 when we explored conflicts with suppliers. Kilmann and Thomas (1977) identify five conflict styles according to the degree to which an individual is assertive versus cooperative when faced with a conflict situation. In a strategic collaborative relationship there is much scope for conflict to arise. New combined teams will begin by going through the ‘forming’ stage and will therefore then go through ‘storming’ (necessary for group norms be get established), ready to move towards new goals, with important payoffs for both so there is a lot at stake. All of this happens against a backdrop of parties choosing to work together rather than having to, which creates an imperative to make it work and keep it working so both remain interested. The way individuals handle conflict in such a relationship is important. Skinner et al (1992) state that conflict has a negative impact on cooperation – conflict reduces satisfaction of parties in a relationship whilst cooperation leads to more satisfaction in the relationship. A collaborating conflict style is the most helpful in a strategic collaborative relationship in terms of resolving disputes, reaching mutual goals and ensuring relationship continuance. However, this is more than an ideal personal style, it is actually essential for a highly important supplier relationship as other styles could be acutely damaging to the relationship. Similarly if an individual is not good at cooperating then the ability of parties to work together to achieve mutual goals is compromised, furthermore cooperation reduces opportunistic behaviour (Tangpong and Ro, 2009). It could be argued that the TKI style compromising would be more useful for a key strategic relationship. This indeed would be appropriate for many important supplier relationships and indeed is typically where negotiations with suppliers end up. For strategic collaborative relationships compromising is a compromise in itself. Results come from determined collaboration in the face of challenging relationship building and this calls for high levels of cooperative assertiveness as opposed to parties compromising for the sake of the other.
Finally, the last ACE trait is emotional competence (EC). This is the ability to understand and manage our emotions and those of others, and to express emotion. Emotional competence of an individual is increasingly considered alongside IQ as a measure of personal capability, and can now be found being used by employers within some recruitment processes. EC is a core skill of sales people; empathy and specifically the ability to understand other’s emotions and adapt like a chameleon enables the seller to build rapport and therefore aid the sales process. Emotional competence comes more naturally to some than others but is a capability we can develop with continuous practice and social experience. Strategic relationships with suppliers involve building relationships characterized by trust and consistency with key individuals. In practice this requires adaptability, compromise, understanding their position and the things that trigger certain emotions. Therefore procurement people building strategic collaborative relationships should ideally posses a strong level of EC. If we are looking to appoint an individual into a role here the EC should be a consideration.
The Ideal Individual for Strategic Relationships
There is a further dimension beyond personality that is relevant and that is how an individual believes business interactions should take place and therefore how he or she is motivated and behaves. Granovetter (1985) suggests that business decisions are influenced by both sociological and economic concerns and that how we approach a business decision exists somewhere on a continuum between these two (Figure 13.4). At one extreme the sociological concerns such as fairness, honesty, equality, trust, altruism and common interest drive business decisions. Here progress might be thwarted by the fear of upsetting anyone. This can be seen in action in collective societies where decisions are avoided for fear of losing face or causing disrespect for the group. At the other extreme are business decisions made by an individual (and therefore how he/she acts in the relationship) that are totally influenced by economic concerns. As such this drives self-interest behaviour that is cut-throat, dishonest, opportunistic or involves wrongdoing. Again individuals at this extreme will fail, whilst they might be driven to maximize profits and returns, they will struggle to win or retain support. Most likely they will have no or few friends. Granovetter (1985) suggests that the optimum approach lies somewhere in the middle. He calls this ‘embeddedness’ and suggests it is characterized by networks of interpersonal relations. Personal networks of individuals are highly important to strategic relationships, not because it means the individual has lots of LinkedIn connections but because of what that represents and the untapped power it offers. I will return to this later in Chapter 14 when we explore innovation.
Figure 13.4: Granovetter’s continuum between sociological and economic concerns
Therefore the ideal individual to manage strategic supplier relationships has a personality that promotes relationship building, is collaboratively assertive, has strong emotional competence and is naturally good at networking. In addition there are many skills and capabilities that are needed but these are things that can be learnt and I will cover these in Chapter 15.
So far we’ve talked about personality and characteristics on our side but before we leave this section it is worth considering that of the seller, which is equally as important
to foster commitment and collaboration and we may have more influence than we realize here. Whether a new or existing supplier, a strategic relationship is a significant thing so discussions around which individuals are to be involved is not unreasonable. Here we are seeking the same individual, organizational and motivational components that we saw in Figure 13.2above. In particular there are two factors that are particularly relevant to look for (adapted from Tangpong and Ro, 2009):
1. Staff turnover – staff turnover in itself impacts relationship building, clearly because it reduces tenure and therefore reduces scope for building trust at an individual level. Moreover it can be the symptoms of deeper issues within the business.
2. Cooperativeness vs assertiveness – the demonstrable ability for assertive cooperation rather than competitive assertiveness.
Organizational: Transparency, Coordination and Communication
At a company level the factors that enable strategic collaborative relationships are transparency, coordination and communication. Together these provide the conditions for the relationship to exist and thrive, whilst enabling the other party to gain confidence in the relationship, which then leads to commitment.
Transparency is about being open and honest with the other party around direction, intent and any factors that could help or threaten the relationship, and it is about positive actions to share anything that is relevant with the other. Transparency builds trust in the individuals involved, yet transparency is something that must happen at an organizational level because it concerns how a firm organizes itself to become more transparent. In an arm’s length buyer/supplier relationship, with a supplier that is not particularly important, it would be normal to share only what information is necessary for the transaction. It might even be normal to mislead the other party for opportunistic or self-preservation reasons, eg to make the other believe there was a future opportunity in order to elicit more favourable pricing now. This is the opposite of transparency and is typical of a transactional relationship whereas when parties manage to open up and share more it breaks down the barriers of self-preservation and opportunism. Openness breeds honesty and therefore trust, as nothing is hidden and if parties begin to proactively share information that will help the other be more effective then transparency will positively drive commitment and therefore results.
Transparency is the aim, and this happens through good communication and information sharing and through the coordination of these activities. Achieving this in practice means instigating certain routine practices and these might include:
§ exchanging ‘real’ company information around performance, current situation, strategy and future plans;
§ ensuring accuracy of forecasts and non-contracted intentions; § ‘open book’ approaches to sharing detailed cost information; § sharing details about who is talking to whom in each other’s organization; and § using ‘voice’ – ensuring issues or concerns are vocalized.
All this said there is a health warning here, and that is to be careful not to completely believe the dream. The dream is a strategic collaborative relationship where parties are completely open, transparent and actively share and communicate with each other for the good of both and the relationship. If we were going to marry the supplier then the dream is good, but suppliers are different and here we are still part of a commercial relationship, no matter how close it might feel. It is essential to court closeness with caution and openness with vigilance if we are to remain objective and fully in control of our position.
Organizational Readiness
The organization can only enable a strategic relationship if it organizes itself to do so. In practice this means assigning clear roles and responsibilities for those tasked here, a structure and ways of working that promote relationships and sufficient resources and investment to support a programme of ongoing relationship building with enough time and money to allow this to happen. Relationships will not happen unless the firm is serious about doing so and backs this up with real investment. Many of the attempts to develop strategic relationships that I see simply fail because an organization has attempted to just tag it onto someone’s already busy job and then imposes travel constraints that prevent face-to-face meetings. Instead, if organizations want the benefits from strategic supplier relationships then they must invest in making them happen and free up the necessary resources to do so.
Motivational: Willingness, Benefits and Alignment
Behaviour in buyer/seller exchanges can be either opportunistic, ie where one or both parties act selfishly or unilaterally for their own benefit, or can be to build and support relationship continuance (Tangpong and Ro, 2009). Each party, and more specifically individuals within each party, choose their behaviour. Strategic collaborative relationships need willing and motivated parties, who both want to act to build and support the relationship. At a simple level willingness is a product of the potential benefits available and the degree to which these align with our overall goals and direction. However, there is more here and it doesn’t follow that a willing partner has the ability to convert this into positive action in the relationship. In fact, looking from our perspective, the degree to which a relationship can be built, developed and maintained with a supplier ongoing depends upon:
§ The degree to which they want to – their interest or willingness to develop a relationship with us.
§ The degree to which we are able to – the scope for influence of the relationship. § The way we attempt to – the personality, characteristics and behaviours of the
individuals involved.
Interest or willingness for the relationship can be assessed using the Supplier Preferencing tool; we can assess how we believe the supplier would view our relationship based upon how attractive the account is to them and the relative value of business we represent.
Determining scope for influence within the relationship is less simple because of the fact that relationships are held by individuals. Tangpong and Ro (2009) suggest that the degree to which one person can influence a relationship depends upon the boundaries of that which can be controlled. These are:
§ Relational norms – the values shared amongst exchange partners, for example how partners determine what is or is not acceptable behaviour in the relationship. If no boundaries are set here then partners might be free to develop all sorts of relationships. Supplier Codes of Conduct or a Relationship Charter help define expected behaviour with suppliers together with boundaries that determine the degree to which the relationship can be influenced.
§ Dependency – how dependent one firm is on the other. If one firm has the power and the other is completely dependent, then attempts to influence the relationship by the other, for example to secure supply, could be completely ignored. Put simply, the powerful party does not need to engage in the relationship.
Dependency not only affects the scope we have to influence a relationship, it also helps gauge willingness on their part. If we consider dependency alongside Supplier Preferencing we gain a more accurate insight into willingness. Attempting to build a relationship with a supplier who sees us as a Nuisance or in the Exploitable quadrant seems logical in order to reduce risk, especially if we are completely dependent upon that supplier, and have little choice or ability to switch. Yet there is no imperative for them to respond to our efforts to build a relationship. Dependency can be factored into our assessment by using both the Supplier Preferencing tool together with the Portfolio Analysis tool (where we consider how individual categories of spend should be managed). Figure 13.5 shows the two matrices combined and the likely degree of supplier willingness for a relationship according to each combination. With this information we are able to determine if efforts to develop a relationship are worthwhile and what we might need to work on to influence the relationship.
Figure 13.5: Supplier preferencing and portfolio analysis combined to show supplier willingness for a relationship
Are They Capable of Having a Relationship?
The supplier may be willing but what if they are not capable of having such a relationship? This is not uncommon and many organizations are simply not organized or structured in a way that enables this to happen, and despite all the best will, attempts to establish a relationship will fail. Things that need to be in place for this to happen, and so provide indicators of the likelihood of success, are:
§ clear and visible executive support within the supplier; § supplier has organized itself so as to free up resources for the relationship; and § visible cross-functional working and communication.
If the supplier appears incapable of building a strategic relationship (despite what the key account manager might tell you), then there are just three options here:
§ Work with them to get them to change and develop. § Manage them instead of building a relationship. § Find another supplier (if practical).
Commitment, Cooperation and Collaboration
So, to bring this to a summary, effective strategic relationships are born out of commitment, cooperation and collaboration. Commitment flows from the individual, organizational and motivational factors, if these things are present then there will be a natural commitment by parties to build and maintain a high performing joint relationship. Commitment is an output, but it is an activity also and one that operates at both an individual and company level. It is about decisions and action clearly being made in support of a long-term joint relationship. The visible or tangible signs of commitment are
important as it is these that parties seek in the other in order to commit back. For example, if we say we are working together with a supplier but our behaviour is opportunistic and we seek to avoid committing to anything that will build joint relationships then we are just paying lip service to a stated intention; this will soon become obvious to the supplier who will fail to respond. However, if we back up our stated desire for joint working with real action then we are demonstrating commitment. In practice this can take many forms but might include, from our perspective:
§ making our resources available to them to help them, perhaps with no immediate benefit to us and perhaps even without charge;
§ investing time and energy in the relationship, helping them and joint working; § making long-term investments in assets or facilities that support joint working; § providing long-term contractual commitment to minimum volumes or spend
levels; § visibly promoting the joint relationship including, for example, co-branding or
publishing marketing collateral about the relationship.
If we show commitment but reciprocation is lacking then it could indicate a lack of willingness on their part, in which case we might need to rethink our aims for the relationship here. However, it could also mean a willing supplier is holding back or individuals haven’t figured out how to enable things such as communication and transparency in practice. It could also mean the individuals leading the relationship are not the right people. The reality here is that strategic collaborative relationships are hard to create in practice and often there is little experience of doing this so efforts can fail just because parties don’t know what to do. If we are certain there is willingness then such issues can usually be overcome by working together to secure the necessary commitment.
It could be argued that cooperation and collaboration are one and the same, and to a degree this is true, but both are needed; cooperation involves agreeing to accommodate the other and work together with them and collaboration is then the process of actually doing this to secure results. Both are summarized by the concept of joint working, which I shall explore more fully shortly.
Go Drink Beer with Them, but Go Dutch!
When I’ve trained and worked with senior procurement teams, I have often suggested something like ‘If you want to build a strategic collaborative relationship with your supplier you need to go out and drink beer with them.’ My suggestion is typically not received well, people become visibly uncomfortable and those in charge feel compelled to issue some sort of countering or balancing remark. However, whilst I am being deliberately provocative, I am also attempting to get companies to think differently about how they approach such relationships. As we touched on earlier, as buyers we are brought up to follow the ‘keep suppliers at arm’s length’ philosophy, and, in most Western cultures, we also tend to follow strict ethical principles that are not set up to permit anything that gets too close to a supplier. For a strategic collaborative relationship we need to behave differently, and even change the policy, if we want it to really work well, and the secret to this is social interaction.
In the vast majority of interactions with suppliers the degree of social interaction is limited to casual conversations at the start of meetings about sport, vacations and family. These moments of sharing ‘personal puff’, often initiated by the seller, are there to build rapport and culturally it is often expected, especially by the Italians. However, this is in fact pseudo social interaction.
If we really want supplier relationships to work then we need the individuals to be compelled to work to build the relationship, and this has to happen at an individual level, in the same way it has to within any team. This usually only comes after a good degree of social interaction; the point when people get to know each other and who they are, not the title they hold. Therefore we need to create the opportunity for individuals to do just this. Suppliers have long since understood the power of social interaction in building a relationship, which is why they love to invite customers to sporting events or functions they host. However, this sort of corporate hospitality is increasingly unacceptable from the perspective of accepting gifts from suppliers, but crucially it is not appropriate because it is social interaction on their terms and creates obligation through the gift. Instead we need a form of social interaction that does not create obligation but remains entirely neutral and transparent. This is as simple as going out for dinner, going out to a bar or even an event where key individuals can get to know each other, discuss work topics as well as personal topics but where both ‘go Dutch’, ie they share the cost and pay their way equally, and both are investing in the process of doing so.
The ‘5A’ SCR Process We are now halfway through this chapter and so far not a single process diagram or methodology has appeared, and for good reason! Strategic relationships don’t happen by following a process, they happen through individuals.
Joint working is what happens in practice day to day to foster commitment, cooperation and collaboration and is about creating the right conditions to enable this. Characteristics of joint working include:
§ individuals have clear roles and remit to embark on joint working activities; § parties will have shared goals; § parties will regularly meet to share, exchange ideas, work towards an agreed
outcome and innovate; § parties will use the ‘voice’ (see Chapter 11) and will raise concerns openly and
candidly with the intent of changing objectionable conditions; § parties will readily invest time and money in the relationship, often without
counting the cost; and § there will be clear benefits, shared by both, that emerge on an ongoing basis.
The mechanics of joint working are actually very simple, however these mechanics will only function if all the other components needed for a strategic relationship are in place. In the Orchestra of SRM joint working is possible when the various other sections of the orchestra play together, and then we can instigate a joint working programme.
Making Joint Working Happen
Just when you thought it was safe, there is in fact a sequence of steps to achieve joint working and build a strategic collaborative relationship and this is process (given in Figure 13.6), named after the five stages of Activate, Analyse, Ambition, Accomplish, Advance. 5A is however much more than a simple series of steps, it is itself a comprehensive methodology through which we can secure the benefit we seek from our strategic suppliers. So why have I left it until Chapter 13 to reveal this? Quite simply because the 5A process, and indeed any meaningful sort of strategic supplier relationship, cannot realistically exist or function to any degree without all the other components of SRM. In the Orchestra of SRM, the music of the strategic supplier calls for all sections to play, for some parts at least. We cannot begin to focus on achieving joint strategic goals if we don’t have SPM or SI&D arrangements in place, and we still need SM.
Figure 13.6: The 5A Strategic Collaborative Relationship process
The 5A process is akin in complexity to the 5i Category Management process (outlined in my first book Category Management in Purchasing). The two processes have been specifically designed to work together and share many common tools, some used differently for SRM, which have been covered as we have moved through the various sections of this book. There are also a number of generic tools and steps called out here such as communication planning, stakeholder mapping and value levers. These, and others, are standard strategic procurement tools, and are also found within Category Management in Purchasing and so have not been repeated here.
The 5A Strategic Collaborative Relationship process is a five-stage process that is applied to a single supplier, identified as strategic and with whom we wish to collaborate to achieve certain goals. Stage 1 Activate is concerned with kicking off the project, stage 2 Analyse is concerned with data gathering and internal goal setting. Stages 1 and 2 are largely internal to prepare for a joint engagement. Then stage 3 Ambition is about defining the SRM strategy and engaging with the supplier and stage 4 Accomplish is about realizing the strategy and putting in place joint working as needed. Finally stage 5 Advance is about working towards new goals as well as
ongoing relationship management. The first three stages have a mostly internal focus and our focus and the main engagement with the supplier begins in stage 4. Along the way there are a series of internal and external workshops that help move through the 5A SCR process as well as two stage reviews; key points in the process where a review and challenge of the project can help ensure the right degree of process rigour.
Stage 1: Activate
SCR begins by checking the macro relationship requirements; what the company needs from its supply base. This, together with the outputs from the segmentation process that show why the supplier in question is considered strategic, then enable us to develop an opportunity analysis and define the aims and scope of our project.
SCR projects usually require cross-functional teams as well as the involvement and support from across the business. Therefore in this stage we pull together a small team (typically five to seven individuals), selected because of their involvement, interest or how they can contribute, and an overall executive sponsor to help galvanize the project. The Team Chartertool can be used to define the project, aims and various roles and commitments. The first tasks for the team are to develop a Project Plan for the SCR project so as to provide the basis to manage the project towards an outcome, work up a Stakeholder Map of all in the business who have some sort of interest in this supplier and a Communications Plan for internal and external communications to help secure support and participation. Once developed the activities within the communications plan need to be realized, perhaps requiring a dedicated role within the team to manage this.
The STP tool (Situation, Target Proposal) provides the means for the team to pool information, knowledge, facts and beliefs about the current relationship with this supplier and then to begin to consider possible early aims, objectives and targets for the relationship, for further refinement as well as initial steps to begin to move towards this. An internal Stakeholder Survey is the first piece of data collection and provides a means to begin to engage the business to understand the business-wide needs and wants for a supplier relationship as well as current and historical performance. From here we can begin the process of developing the VIPER relationship requirements. Finally in this stage a Supplier Interface Map helps us identify who is talking to whom, which should align with our stakeholder and communication maps and is the first step towards being able to present a united front to a supplier.
Stage 2: Analyse
In stage 2 we are gathering data and information that will enable us to determine our SRM strategy. This begins with a ‘deep dive’ supplier-specific fact find looking at as many areas as appropriate for the supplier. This might include checking their financial position, understanding how they are structured, organized and operate, understanding their management systems and their plans for the future or where we believe they are heading. This information can come from many sources; perhaps from stakeholders, a visit to the supplier, research or by asking the supplier. A Supplier Relationship Survey can be a useful early engagement with the supplier to gain their perspective and
a supplier risk assessment is also essential and this will form the basis for ongoing risk management for this supplier.
Depending upon what we are sourcing it may also be appropriate to conduct a ‘deep dive’ fact find for the supply and value chain network. Here we can use the Supply Chain Mappingtool and conduct a supply chain risk assessment. We can also attempt to try and understand what the end customer needs and wants are, which could be valuable insight to help us determine a plan for innovation or improvement.
Internal fact find includes understanding the total spend with the supplier, necessary so we can understand our overall leverage position, the contracts we have in place, what they cover and when they expire as well as a review of supplier performance using whatever data is available. Category mapping is quite simply mapping categories against suppliers and not only allows us to establish all the things a supplier is providing, but also enables us to see the other suppliers that are providing similar categories, again helping us understand risk and opportunity for a specific supplier relationship. A category map together with the business requirements for each category allow us to extract any requirements for the relationship that need to be provided for.
Finally market fact find is concerned with identifying which marketplaces this supplier exists in and what their position in those markets is; for example whether they are a dominant player with good market share or one of many and the factors that drive this such as how generic or proprietary their offering is. PESTLE analysis helps also, along with Porter’s Five Forces, and provides insight into the external environment the supplier is operating in and what opportunities or threats they face.
Stage 2 involves many different tools and analyses, individually they are useful, but together they begin to form a picture of how we should move forward with a supplier, as if each is an individual piece of a bigger jigsaw puzzle. It is therefore crucial that we consider what each individual step is telling us; achieved by asking ‘so what’ does this tell us and capturing these insights. Our ‘so what’s’ will then help us move through stage 3.
Stage 3: Ambition
Armed with the facts, data and analyses gathered during stage 2, stage 3 is about defining our ambition for the relationship. This starts by synthesizing all we have learnt and understood about the supplier and using these outputs to determine positioning in the Supplier Preferencing tool and Portfolio Analysis tool. The output from both of these begin to suggest what our strategic direction might be and specifically if collaboration is feasible and if it is even necessary.
From here we define the ambition for the relationship and the specific things we want and need the relationship to accomplish: ‘the mountain we want to climb’. The Value Levers tool provides a means to consider the different potential sources of value for individual categories, but is also useful to consider the value we need from the overall relationship. It is helpful here as it seeks to validate our assumptions about why a supplier is strategic and the outputs of segmentation, but using it may also identify new
potential sources of value to pursue. We should now be in a position to complete our VIPER relationship requirements, combining all the insights, outputs, aspirations, needs, wants and obligations that have emerged from the work so far.
In this stage, and drawing on our new relationship requirements, we can now crystallize the aims and objectives we have for the relationship overall. The SPM process connects here as we define the specific time bound targets and goals we want to realize and identify the KPIs needed to support these, ready for subsequent agreement with the supplier. Here we also turn to the SI&D process as we define the improvements and development roadmap for this supplier.
Finally we bring all of the outputs so far together in final internal SRM strategy, with a roadmap and plan for realizing the strategy ready for the sponsor and key stakeholders to formally agree to proceed with, and actively support the realization of the strategy with the supplier. The SRM strategy is a key document and step within the SCR process and is expanded more fully below.
Stage 4: Accomplish
Stage 4 is about accomplishing the SRM strategy internally and with the supplier and so realizing our ambition for the relationship. This process starts with internal communication by ensuring all involved or who have contact with the supplier are aware of, and aligned with, the agreed plans for this supplier relationship. The interface map of ‘who engages with whom’ is updated to reflect the ‘to be’ relationship and new rules of engagement are defined and agreed with the business. It is essential that these two steps are not imposed but rather seek to involve those concerned so they understand and appreciate the plans for the supplier relationship and hopefully pledge support here. The other internal activity supports SPM and is to put in place the necessary measurement regime for our KPIs, including any ongoing data collection, analysis and output arrangements needed.
It is at this point where the full engagement with the supplier begins. So far what we need and want from the relationship has been determined internally, with any supplier involvement deliberately limited. However, now we can offer our proposed plans to the supplier for discussion, debate, adjustment, enhancement and hopefully agreement. It could be argued that it might be better to involve the supplier earlier in the SCR process; however, by taking the time to analyse, consider and plan what we believe we need and want internally first we ensure our ambition for the relationship is clear and unbiased. It is however essential not to attempt to impose our plans on the supplier, especially if we seek a collaborative relationship, but rather to use these as the basis from which to build and be prepared to change and adapt as appropriate. Supplier engagement starts by agreeing our code of conductfor the engagement and then specific relationship aims, our KPIs and scorecard and the STPDR improvement and development plans. We need to agree governance for the relationship; how we will work and interact together including how we will review the relationship, how often, what we will discuss, key roles and responsibilities and so on. Our relationship and the way we
will engage and work together is then embodied in a Relationship Charter that becomes a key component of the overall document once parties sign up to it.
It is now that joint working with the supplier begins, requiring investment and time by parties to make this happen. This step should be regarded in the same way as the formation of any new team where a high-performance output is needed. Team building and time for social interaction are essential enablers here. In addition, establishing a programme of joint workshops, or opportunities to interact and share resources, will enable real traction towards desired targets and goals. If these involve finding innovation then we can kick off a programme of working towards this using the FIFI approach, covered in the next chapter.
Stage 5: Advance
Stage 5 is about advancing towards targets and goals and realizing the ambition for the relationship in practice. We apply the supplier management process ongoing as we would for any important supplier to monitor, manage and maintain all aspects of risk, contracts and relationship and to manage the supplier within the governance we have agreed with them in stage 4. We also apply the supplier review process but specifically in line with the way we have agreed this will work with the supplier.
At this point in the evolution of our strategic relationship we have moved into a phase of ongoing engagement and progression. It should not be regarded as ‘steady state’ but rather, as the stage name suggests, ongoing advancement. Key to this is ensuring ongoing joint working, resource sharing and interaction and progress towards innovation projects. In any relationship these activities can easily slip or be deprioritized and so good ongoing project management and governance are essential to ensure the relationship is kept front and centre by all involved.
Finally once a strategic collaborative relationship has been established and is effective, it doesn’t follow that such a relationship will continue to work this way, or indeed will continue to be needed. Things change and we need to be prepared for this and identify when it is necessary to intervene or change the relationship. In practice this is about the Supplier Relationship Manager keeping a ‘watchful eye’ on what is happening all around; what the supplier is doing, what is happening in the market and the changing needs of the business. It is also about ongoing testing, if the relationship continues to work and be appropriate, as it is possible we could reach a point where such a close and collaborative relationship ceases to be so necessary. For example, if we have instigated a strategic relationship because we are completely dependent upon the supplier but a shift in the market opens up new possibilities for us then the need for a strategic relationship could become diluted suggesting we can either reappraise the importance of the supplier, renegotiate our agreement or simply bring the relationship to an end.
Developing the SRM Strategy
The SRM strategy is an internal document that defines our ambition for a specific supplier relationship and the means and approach by which we propose to realize this. It encapsulates all key insights and outputs from the first three stages of the SCR process and provides a key decision point at the end of stage 3 for the business to agree to, and support implementing, the strategy. Developing an SRM strategy for a supplier relationship serves several purposes:
§ A basis for agreement and therefore a basis to secure resources and support to progress to develop the relationship.
§ A basis for internal communication. § A means for internal knowledge sharing. § A catalogue of all the work done to analyse and understand the relationship and
basis for the relationship. § A basis to demonstrate a structured, transparent and rigorous approach to a
supplier relationship.
The extent and content of an SRM strategy depends upon the relationship, the supplier and the circumstances. Every situation is unique so every strategy will be unique also depending upon what is needed to fulfil the points above. The SRM strategy should therefore be designed with the purpose in mind. If securing internal resources and buy- in is of primary concern, then the strategy should sell benefits and present a clear and compelling business case. If the need is to document work done then the document might be structured so to do this. Figure 13.7 gives a typical SRM strategy structure with typical or possible sections and content.
Figure 13.7: Typical sections and content for an SRM strategy document
SRM strategies require time and effort to compile and are therefore most relevant where intervention is most needed, where we need clarity about how we need to manage a relationship and where we need to secure buy-in and investment to do this. SRM strategies are therefore most relevant for suppliers we have identified as strategic, but could equally be used for other important suppliers as needed or appropriate.
An SRM strategy will typically deal with commercially sensitive information as well as true intention for a relationship that we would not wish the supplier to know. SRM strategies should therefore be considered highly confidential with a very limited circulation internally and strictly not for sharing with the supplier. Whilst we may be advocating a close collaborative relationship of sharing and joint working, it still remains a commercial relationship with a degree of ‘arm’s length’ necessary, so we should never completely reveal our position or thinking; the supplier will be doing the very same.
The strategy is a key supplier-specific document, and forms part of a number of documents we might need to create and maintain for each important relationship. We explored the other components in Chapter 11 and the degree to which these are relevant or necessary depends upon how important the supplier is. Figure 13.8 shows the different components and their applicability according to importance.
Figure 13.8: Different components of a supplier relationship by importance International Standards for SCRs – ISO44001/BS11000 Before we leave this chapter we need to touch on international standards in this area. There is in fact a British Standard BS11000 for collaborative business relationships, which has become the international standard ISO44001. The standard is designed to help firms avoid the pitfalls of partnership through investing in collaborative business relationships. It provides a framework for all the things that an organization needs to put in place, defines roles and responsibilities and maps out how to make collaborative decision making a reality. Furthermore, companies wishing to adopt such a framework can also obtain certification to the standard by a recognized accreditation body.
It is perhaps curious that there should be the need for such a standard, after all success in important inter-firm engagements depends upon how good the relationship is. Having a standard for how a relationship must work feels somewhat odd and misses the point of what a relationship is and how it should be developed. Yet it could be argued that if firms were about to develop effective inter-organization collaboration then there would be a vast array of knowledge and success stories out there for us all to learn from, and
there are not; these are hard to find. So perhaps an international standard can help stage-manage the process.
I have included a section on this standard as it is relevant and may be a consideration for any company embarking on an SRM approach. Obtaining certification to this standard will not bring about an SRM approach, that requires all of the things I have outlined in this book to be in place, but it will provide a framework that helps realize part of this and provides a badge that is visible to the outside world of the firm’s commitment and ways of working here. That said there are a number of points for any firm serious about obtaining certification to ISO44001/BS11000 to consider and be cognizant of, if this is part of developing an effective overall SRM programme:
§ The standard assumes you know who you need a collaborative relationship with, furthermore the segmentation approach within the standard omits factors such as importance or dependency, which are essential determinants for a key supplier relationship.
§ As for any international standard, interpretation of the aspirational requirements into practical steps is required.
§ The standard is framed around developing new collaborative relationships from scratch, but in practice a firm will have a mix of new and existing relationships that need to be provided for.
§ It assumes a Western culture. § The crucial linkage to category management is not included. § The framework outlined is linear and procedural and in practice implementing
collaborative relationships may not work this way.
So ISO44001/BS11000 has its place and provides a basis for establishing and improving collaborative relationships, but it is only part of a wider SRM strategy. If the goal of the organization is to achieve an internationally recognized standard for collaborative relationships with strategic suppliers then using the framework of ISO44001/BS11000 is entirely appropriate. The Orchestra of SRM, the SCR process and other processes outlined within this book are not alternatives to ISO44001/BS11000 but an entirely complementary approach.