Suppliers and their customers traditionally have a transactional relationship. Price negotiations, sometimes contentious, lead to contracts and then purchase orders, followed by an exchange of money and product.
But supply chain challenges resulting from the pandemic have forced those customers to rethink that relationship. A transactional outlook is rapidly giving way to what’s known as supplier collaboration, supplier innovation or supplier 360. Whatever the name, it’s the practice of involving suppliers in an organization’s supply chain lifecycle at a much earlier stage than before and relying on their expertise to help drive business value. It’s not a new concept, but speakers on the Supplier Innovation panel at the 2022 Grainger Show in Orlando, Florida, pointed out that it’s gained favor as supply chains are further strained.
The panelists shared some key insights based on their experiences living into this transformation.
Trust is Key
The concept of trust emerged as a theme for all the speakers. By involving suppliers earlier in the supply chain lifecycle, customers are necessarily allowing them a peek at information they wouldn’t see as a vendor, such as enterprise resource planning. Customers and suppliers share equally in both risk and reward in this model, and they also share responsibility for helping their partner through rough waters.
As that trust develops, customers might find that suppliers have unexpected capabilities to support business transformation, panelists said. This is true across direct and indirect materials, health and wellness initiatives and safety.
Build Cross-Functional Teams
Panelists noted that organizations are most successful with supplier innovation when they create cross-functional teams. Representatives from research and development, planning, procurement, safety and more should all come to the table and lay out their vision behind the transformation to supplier innovation. It allows supply chain leaders to learn unexpected details that may impact each of those end users.
Emphasize Value Over Price
Low price is subordinated to the search for value, which encompasses areas such as supplier diversity, impact sourcing and sustainability considerations such as Scope 3 emissions. Chief procurement officers become ever more critical as they help lead this transition.
Value can be measured through both quantitative and qualitative metrics. Finding cost savings, consolidating SKUs and streamlining suppliers can all be tracked on the bottom line. But through the partnerships found in supplier innovation, companies can also measure successes in areas such as risk mitigation, continuous improvement, quality, service and technology.
By providing transparency, companies can look for suppliers to be better at anticipating needs, identifying supply chain challenges and bringing solutions to the table even before the problem emerges.
One panelist said a supplier notified them of expected materials shortages six months ahead, and then helped discover different solutions. That initiative allowed the customer to focus on running their business, rather than fixing supply chain issues.
The panelists noted that a move away from the transactional relationship with suppliers is typically neither immediate nor smooth. It requires a leap of faith to some degree, as well as change management among some stakeholders. But the result can be long-term supply chain improvements that go beyond speed and cost.