Being a great customer for your suppliers

An article I wrote last year on the nasty, brutish tactics of some old-school purchasing folks has proved to be a favourite among the many suppliers I’ve run into since. The angle was all about being a better customer. Since then the pace of supplier consolidation has, if anything, increased, just as the need to accelerate innovation has exploded. The life-or-death struggle in supply chain is increasingly away from worrying only about pleasing the customer and toward cozying up to the supplier.

Expertise is worth more than money

Our latest research report digs into the question of how the best companies work with suppliers to bring better products to market faster. No surprise, of course, that harsh, divisive tactics meant to commoditise suppliers, pitting them against each other for ever thinner margins, works badly when technology, design or creative problem solving is called for.

Consider, for instance, the engineering expertise required for “the world’s first electronic limited slip differential designed for the front transaxle of a front-wheel drive vehicle”. This is typical of what BorgWarner, a highly advanced tier-1 automotive supplier, sells to its OEM customers – in this case, Volkswagen. Suppose BorgWarner feels slighted or cheated by VW. Who loses?

The same can be asked of the increasingly specialised expertise attached to essential materials or components from semiconductors (don’t annoy Intel or Qualcomm) and packaging (be careful how you treat Rexam and Aptar). And even where the technology isn’t necessarily rocket science, suppliers still must sync up with your new product development and launch cycles tightly enough to hit ever smaller market windows with adequate volumes. Orchestration is an especially apt metaphor for best practice engaging suppliers in new product development.

Trust is everything

Research we did on collaboration last year identified a key breakdown with inter-company relations. Mid-level supply chain practitioners saw minimal difficulty with trust in collaborative supply chain work, while SVPs and above said lack of trust was the biggest problem by a wide margin. The difference boils down to awareness at these more senior levels that co-developed value, especially intellectual property, needs to be split up. Open-handed joint problem solving might thus end up making one party rich while the other just gets paid, unless IP issues get tackled upfront.

Extensive research on this topic conducted by a Detroit-based academic, John Henke, demonstrates very clearly the value of maintaining good working relations with suppliers in the auto industry. The precision and long time horizon of the data set shows first how Japanese auto makers leveraged customer-of-choice behaviours to elicit superior innovation from North American suppliers, and then how US OEMs gradually caught up.

Today, for instance, Ford tops Toyota, Honda and Nissan in both “supplier willingness to invest in new technology in anticipation of new business” and “supplier willingness to share new technology without the assurance of a purchase order”. Is it a coincidence that Ford has finally made Gartner’s Supply Chain Top 25 or that Toyota dropped out a few years back? Maybe not.

Customers don’t always know best

One of the big issues in supply chain today is burgeoning complexity driven by digitally empowered consumers. Retailers are getting pounded in this process and most are reacting by shoving pain back up the chain on to suppliers. In my view, the worst thing we could all do is jump unquestioningly through every hoop our customers tell us to.

No one demanded mobile phones, personal computers or even automobiles until Motorola, IBM and Ford made them happen. Instead of slavishly chasing demand for marching orders, maybe it’s time to look upstream and see what our suppliers have to offer. Don’t be surprised if the best among them have more to teach than to learn.