By Mary Siegfried | Inside Supply Management
Building solid supplier relationships and focusing on value creation can help supply managers discover strategic suppliers’ unique capabilities.
Your company wants to introduce a new product line in an emerging market and your supply management organization needs to find suppliers capable of adding strategic value while meeting tight delivery time lines. Uncovering supplier capabilities is not an easy task and one that doesn’t happen overnight. If your organization hasn’t segmented its supply base, developed solid relationships, aligned goals with strategic suppliers and focused on value creation, you may not be able to meet your company’s challenge.
Knowing what your strategic suppliers are capable of and what they can bring to the table begins with a disciplined approach to supplier relationship management where value is continually measured and shared among your organization and its strategic suppliers. If such an approach is part of your organization’s DNA, uncovering supplier capabilities can be as simple as a conversation.
Probing Conversations
That’s what happened a few years ago when two senior executives, one from Shell and one from Hewlett-Packard (HP), were having a conversation. HP is a strategic supplier of end-user services, service desk and hardware to Shell and, as part of Shell’s focus on supplier relationship management, the executives meet to discuss business value. Because both companies focus on innovation, the conversation eventually turned to what’s new in R&D. The HP executive talked about research into a new wireless printer head the size of a postage stamp that works by picking up vibrations (using sensing technology). The information piqued Shell’s interest because its deep-water oil explorations use sensing technology to discover rock formations that could hold oil several miles under the ocean. That simple conversation sparked a collaboration between the two companies to produce a system to sense, collect and store geophysical data.
David H. Cummins, senior supplier manager, strategic sourcing for Shell Global Projects U.S. in Houston, says the example proves that dedication to uncovering supplier value and capabilities is a never-ending process. “The value that was uncovered was part of a conversation that had nothing to do with the current services provided,” he says. “Finding hidden capabilities is about putting each other’s brains to work on challenges and to come up with something that is new and tangible. Very often capabilities are revealed when you are having deep conversations about mutual interests.”
Laying the Groundwork
Supply chain leaders agree that before capabilities can be discovered, supply management organizations must lay the groundwork with their strategic suppliers so both are comfortable sharing capabilities and finding value for mutual benefit. Experts say the groundwork begins with:
- Maturing the relationship, and understanding that developing strong supplier relationships is an ongoing process
- Understanding there must be mutual benefit
- Understanding each other’s business strategy — the foundation to knowing what each business can bring to the relationship
- Designing a structured approach to developing a deep knowledge of your supplier, and dedicating sufficient time and staff to do so.
Fluor Corporation uses a disciplined approach to manage relationships with its strategic suppliers, explains Lisa Haley, executive director, procurement for Fluor in Sugar Land, Texas. She says it is grounded in the idea that the relationship is a two-way street. “Understanding our complementary strengths and significant mutual opportunities makes our strategic suppliers more comfortable sharing their capabilities with us.”
Fluor has product directors who manage the company’s global supply chain, working in center-led groups in Shanghai, Houston and New Delhi. Haley says this approach helps the procurement organization develop strong relationships with strategic suppliers, which, in turn, allows the organization to better uncover capabilities and apply the often innovative solutions. Product directors are category experts in the basic building blocks of capital projects such as structural steel, fabricated modules or pumps. Some of each product directors’ duties include not only understanding the category itself but also the global supply base capability for those goods and services, and they share that information through published material market bulletins with the company’s more than 2,000 procurement employees.
“They have to know what the top suppliers in a category are concerned about. They need to understand their backlog, whether shop space is filling up and even if the supplier is going to have to pay more for engineers in the coming months,” she explains. The information they share is like “a personalized Wall Street Journal for our industry.” Understanding this type of information helps when Fluor looks to its global supply chain for additional or unique capability, she adds.
Sharing Future Outlooks
Haley says one way to enhance strategic suppliers’ abilities to provide new or updated technology, products or services is to let them know where your organization is headed. Fluor’s supply management organization opens up those doors with an opportunity forecast call during which the product directors share current and anticipated business needs. “This monthly call allows all of us to look down the road. We tell them where we are going and invite them to bring their own intelligence, innovations and integration opportunities,” she explains.
Such insight allows strategic suppliers to offer innovative ideas or processes because “we have made it clear to them that no longer is it good enough to just deliver what we ask for,” Haley adds. If you want to uncover unknown supplier abilities, offer your suppliers both a challenge and a chance to become better integrated and deliver improved overall value.
Haley says the procurement organization partners with Fluor’s engineering group to challenge strategic suppliers to look beyond specifications and “give us your best shot.” Because strong relationships have been established, Fluor can tell suppliers to “push back on us when we ask for the same old thing.” And she notes, “Our suppliers absolutely are open to the challenge.”
Understanding a supplier’s business strategy is key to understanding the value it is capable of offering, says Shell’s Cummins. Once there is a strategic understanding of each other’s business, the companies can align interests and uncover significant new value that otherwise would not have been discovered, he says. A deep understanding of each other’s business and strategy allows both sides to see if they are overlooking opportunities to add value.
Finding Untapped Value
Catherine Burns, global discipline excellence lead for Shell in Houston, says often supplier capabilities are found “as we share our strategies and business goals with suppliers.” During these “insightful” conversations, she says both sides can probe what the other is trying to achieve. Such frank discussions cut down on the costs of doing business by clearly defining the organization’s needs and determining whether suppliers have the required capabilities.
While it is best to start with the premise that you believe there is untapped value, Cummins says don’t go into a search for value or added capabilities looking for commercial value at first. “Begin by trying to understand each other. It is important not to worry which company will be the first to realize the value or benefits,” he points out. “At this stage, it is a trust-building, relationship-building tactic.”
Because delving into supplier capabilities first requires strong strategic supplier relationships, Jim Tarabori, director, supplier development and sourcing for CGN and also director of its Institute for Supplier Collaboration in Peoria, Illinois, emphasizes that a company must first create a culture that values relationships and value-sharing. Tarabori created the supplier relationship management program at Caterpillar Inc. as the company’s director of supplier relationships and development in its Global Purchasing Division.
He says to create such a culture, it is necessary to have senior management’s support, multifunctional stakeholder involvement, internal alignment of corporate goals, a companywide TCO approach and a rigorous process to segment the supply base. Further steps a procurement organization can take to develop and manage the type of strong supplier relationships that will help uncover supplier capabilities include the following.
Seek a product life-cycle view of opportunities and waste. This view begins with listening to key suppliers that often have a unique understanding of product life cycles because of their involvement in design and manufacture. “To get a good view of a product life cycle, the customer has to listen to the supplier because they usually see the problems before they happen,” Tarabori says.
Create a win-win approach with shared benefits. By offering an approach that shares benefits, the supplier will be more open to share and improve its capabilities to meet the supply management organization’s needs.
Focus on creating value and eliminating waste. This type of focus allows both organizations to “look at the entire pie and not fight over who is getting the biggest piece of the pie,” Tarabori says. Eliminating waste means there is money for everyone to share.
Establish a rigorous governance process. This process is needed so that opportunities and capabilities that are discovered don’t get lost in everyone’s busy schedules. Tarabori suggests developing a specific project around an opportunity, then tracking and reporting the benefits as well as monitoring its progress.
Overcoming Challenges
The governance process is one of the most difficult for organizations, says Sundeep Maini, director of collaborative processes for CGN. “Suppliers are independent business entities and the supply chain organization doesn’t have control over them,” he says. That’s why it is difficult to maintain traction and visibility as projects develop. “Everyone wants to leverage supplier capabilities, but they struggle to find the time to do that and to turn it into a competitive advantage,” he says.
Maini also says that to find needed capabilities, supply managers must know their suppliers’ business because collaboration won’t happen if only one aspect of the business is scrutinized. “One thing that always puzzles me is how little supply managers know about their strategic suppliers’ business,” he says. “They often don’t know top-line sales figures, product lines and/or production capabilities. You have to know everything about what your suppliers are doing and where the suppliers are going. It is time well-spent.”
Cummins says Shell has supply management professionals who focus specifically on managing and governing strategic relationships to find added value and to support performance management. “We do this deliberately and strategically,” he explains. The process involves interviews with cross-functional business units to find out where supply management may be missing value opportunities. Similar meetings and interviews are conducted with strategic suppliers.
“We ask very specific questions,” he says. “For example, we might ask suppliers, ‘What do we require you to do that may increase costs and limit your investment to increase value elsewhere?'” The interview questions are crafted to uncover areas where the organization could better deliver value and work more efficiently with business partners and suppliers.
Dreaming the Possible
Although most supply chain organizations understand the need to find out more about what suppliers can offer, Burns says organizations face several challenges. Time and resources are big hurdles, but changing an organization’s mind-set also is difficult. Burns says that when looking to uncover supplier value and capabilities, she seeks out supply management professionals who are curious.
“I tell people they have to have conversations that can dig deeply into a situation and they have to be able to dream the possible,” she notes. At the same time, she cautions that if your organization and its strategic suppliers commit to searching for added value, there has to be follow-through. “If you have those conversations and find value, but do not pursue that value, you are probably doing more harm than good. The commitment to discover new value together should set the expectation that you are also committing the resources to realize and deliver value.”