The building blocks of entrepreneurship: Supplier alignment
15 Aug 2018
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There is nothing more important in business than alignment. That’s an all-inclusive statement covering business owners, managers, staff, customers, and every other conceivable stakeholder. But understanding your suppliers as equal partners with distinct priorities, rather than working to overcome them, can be the difference between success and failure.
Far too often, I have seen business owners negotiating aggressively with suppliers on price, to the point at which the supplier simply cannot afford to add further value. For what? To make the relationship entirely unattractive and one-sided? Shaving every last cent off your costs in this way doesn’t make business sense. The inevitable outcome is that other important factors such as training, marketing and customer care become a thing of the past and eventually, the supplier – exasperated – walks away from the deal.
A ground-breaking 1983 McKinsey study shifted the tectonic plates of supply relationship management. It recognised that suppliers should be partners to be proactively cultivated, rather than subordinates to be squashed. As the procurement expert Jonathan Webb argued on Forbes.com last year, achieving supplier alignment “requires both parties to exercise trust and seek opportunities to create a bigger pie and not, as you might with a stationery providers, argue over the size of the pie’s slices”. That is the approach I have taken in each and every business I have built.
Suppliers, equally, have to uphold their side of the bargain. If you doggedly hold to your supply terms regardless of market conditions – necessarily, the market has to be strong enough to sustain your offering – then don’t be surprised if your orders dry up. I’ve seen suppliers ‘punish’ customers for refusing to sign up to an exclusivity agreement, or declining unrealistic terms. The outcome is an inevitable parting of company. There must be flexibility and understanding on both sides if we are to arrive at the alignment which will see winners emerge on both sides.
Some may call it ‘old school’, but I believe business relationships should be based on an expectation of long-term alliance and respect for one another’s goals. Unfortunately, senior managers in large companies are increasingly focused on hitting short-term targets which do little for the longer term health of the business. Taking the time and care to ensure you are aligned with your suppliers will pay far greater dividends.