SIG University Certified Supplier Management Professional (CSMP) program graduate Damilare Adeoye discusses why having a strong relationship with suppliers makes for more compatible businesses.
Successful supplier identification, qualification, and onboarding require a stringent supplier relationship check. This is important because it drives a long-term relationship with the supplier and the client, not based on cost, price reduction, or specification alignment.
This lesson, to me, is the art of any successful supplier relationship.
However, many procurement professionals and their organizations need to gain these skills. No wonder the relationship with the supplier is shabby, and most times, a one-way approach where the client is always looking for ways to save money and still get quality materials, and the supplier is always looking for ways to increase the price. "Any relationship that is not built on compatibility is a relationship that is heading for a crash."
In this essay, I introduce you to "what" a supplier relationship fit is and "how" to successfully develop a supplier relationship compatibility/fit, implementation, and management.
- Supplier: An organization that provides raw materials, products, or services.
- Compatibility: the state in which two things can exist or occur together without problems or conflict.
Supplier Compatibility is when an organization that provides raw materials, products, or services shares similar strategic approaches, goals, and objectives.
The word 'similar' is essential because there might be an exemption for some suppliers that are not fully aligned or integrated with the client regarding goals, strategic objectives, and approaches to the business. Still, the client can only do with them for many reasons, such as sole source situation, intellectual properties, low spending, and low risk to the client.
Assessing the relationship fit between suppliers and clients is so important. However, understanding the "how," i.e., the approach, is as important as the "what." The most common element in a relationship is communication, which is based on trust and transparency. Supplier fit is not about personalities but about how both companies are aligned regarding short- and long-term goals and objectives.
Also, the level of information you have about the supplier before selection will determine the platform of engagement, which will ultimately define the relationship that both the supplier and the client will build over time, and that is the key to a successful business relationship.
We will now evaluate the contracting process related to supplier relationship compatibility.
The contract process includes the following:
- Pre-Contract – Supplier identification, Solicitation (RFx), and Evaluation.
- Contract, Negotiation, and Execution – Formal negotiation, performance expectation, the establishment of governance, and execution.
- Post-Contract, Period of Service - Contract Compliance, Governance, Performance tracking, and Issues resolution.
Supplier fit/compatibility analysis should be performed during the pre-contracting phase of the contracting processes to ensure that suppliers and clients are aligned and compatible in terms of strategic goals and objectives, values, strategy, operations, and social engagement, which are the focus areas of consideration.
The Solicitation phase of the pre-contract is the ideal phase to conduct supplier fit analysis because, during the solicitation, the supplier provides detailed information about their organization. Suppose the supplier does not provide information as needed to achieve supplier fit. In that case, the solicitation phase allows the client to request enough information to perform the supplier fit. Also, at the pre-contract phase, the client has the most leverage with the supplier, and the supplier is also eager to provide product/service to the client.
It is essential to note that similarities or alignments in values, culture, strategy, and operations between the supplier and the clients will produce the best results. In contrast, misalignment in values, culture, process, and processes between the supplier and the client will produce sub-optimal results.
Aspects of Supplier Relationship Fit that produce the best results include Values and Culture, Strategy, and Operations.
Supplier Relationship Fit Areas of Consideration:
- The values and culture of both suppliers and client
- Strategy alignment
- Operational excellence
Values and Culture:
- Principles and ethical standards
- Leadership style
- Environmental, Social & Governance (ESG)
- Safety culture
- Quality culture
- Diversity, Equity & Inclusion (DE&I)
- Growth plans
- Market position
- Customer base
- Key objectives
- Company size
- Continuous Improvement
Importance of Supplier Fit/Compatibility:
Supplier fit/compatibility is vital to the overall success of the supplier relationship because:
- It provides solid alignment that drives optimum results and values from suppliers and clients.
- It enhances a robust competitive advantage in terms of lower cost, decreased risk, and improved innovation results.
- It helps identify misalignments and address potential challenges before the supplier onboarding process.
Assessing Supplier Compatibility:
Reviewing the client's characteristics is an effective way to assess supplier compatibility. The supplier's culture, values, strategy, and operations are side by side. Then the level of compatibility/score is captured in a scorecard, and a review of each character's compatibility score leads to the overall compatibility determination in each area and the overall score of the relationship.
There may be times when a company needs to source materials, products, or services from a supplier that is not compatible with the client's objectives for some reasons such as sole source situation, intellectual properties, low spend, and low risk to the client as mentioned above, therefore, in such cases, early identification of misalignment will help address potential challenges through supplier governance.
A solution to Incompatible relationships:
- Build trust and respect over time
- Communicate and be transparent
- Show suppliers "what's in it for them."
In Summary, supplier fit exceeds usual supplier selections, cost savings, and risk mitigation. Supplier fit should be evaluated on other vital considerations that determine compatibility. If the supplier fit is done correctly, both the client and the supplier will enjoy the long-term benefits of supplier relationships. Other uses, such as cost savings, risk mitigation, and supplier performance optimization, will come quickly.
Finally, the relationship is key to successful organizational excellence.
The Certified Supplier Management Professional program is a five-week course delivered through SIG University’s unique education platform. Visit our website to learn more about the discipline of governance and enroll for the upcoming semester.
Oluwadamilare Adeoye, fondly called “Dar-Me-Lar-Rey” was born in Lagos, Nigeria. He moved to the United States in 2013 and has then worked in various sectors such as Pharmaceutical, Nutraceutical, Contract Manufacturing and Consulting.
He has successfully developed a Quality Management System (QMS) within a CMO/Nutraceutical Organization and has led a Global Direct Material Team (Pharmaceuticals) as a Global Strategic Sourcing/Category Manager covering the Americas, EMEA and China.
He is experienced in managing transformational change to enable significant value creation which include Innovation, Supplier Risk Identification & Management, Supplier Relationship Management, Supplier Governance, Supplier Audit, Change Management, and Business & Process Analysis