There’s an uprising in procurement today. Companies are fighting for better supplier communication, collaboration, alignment, agility, flexibility and integration to create the best in Supplier Relationship Management (SRM). As simple cost cutting loses ground, astute businesses win more value and gain a Return On Relationships through an innovative, relentless SRM approach.
Procurement is uniquely positioned to cultivate SRM innovations across the supply chain. While SRM has picked up steam throughout industries, implementing its strategies, such as a strong, integrated working relationship that fosters an invaluable exchange of ideas, is still emerging. Yet, where companies have tapped into suppliers’ knowledge, talent and capabilities, a revolution against stagnation has taken place. Companies already winning the fight include Toyota, Honda, Brose Fahrzeugteile and Procter & Gamble. So I’m going to dive in, and explore some of these fantastic companies who are leading the way in evolutionary SRM innovations.
Paul Teague, the US contributing editor of Procurement Leaders, recently pointed to the Supplier Working Relations Index 2015 Study by USA-based Planning Perspectives, Inc. (PPI). PPI states that Toyota and Honda continue to improve supplier relations and through this are ranked one and two, respectively, for the past five years. Meanwhile, if supplier relations at Ford, Nissan, FCA and GM improved by 8.7%, the companies would have collectively earned an additional $2 billion in profits last year. The study finds “automakers should be working very hard to improve their relations with suppliers, especially since the OEMs spend 60% to 70% of their revenue with suppliers and because suppliers play an increasing role in the success of vehicle programs through their sharing of new innovations with the OEMs.”
Brose won this year’s Procurement Leaders Innovation Award for a Supplier-Enabled Innovation (SEI) programme that produced a 40% lighter door module. According to Procurement Leaders, the supplier and Brose attended workshops together and scoped the project before signing an exclusive development and cooperation contract. Six months later, the new door was in production. The company’s CPO Sandro Scharlibbe created an innovation management organisation and innovation board to enable procurement to better ‘listen’ to the business and its suppliers. With this, 200 innovation ideas were identified with 22 now allocated for mass production, Ovation states.
Stepping outside the automotive industry, Procter & Gamble serves nearly 5 million customers, so when the company wanted to ‘foster creativity and innovation,’ it developed its Connect + Develop program in the late ‘90s where anyone, globally can share their innovations with P&G. Today, connections are made directly on the C + D website and is one of the company’s most ‘powerful corporate efforts to bring new products to the market,” P&G states.
Representative of the C+D relationship is the company’s work with USA-based MonoSol, maker of water-soluble films, compounds and solutions. While the two companies began working together a decade ago, Tide Pods presented a new challenge. The task was to keep three types of cleaning solutions separate until immersed in water, leaving behind no residue even at a cold temperature, according to P&G. The companies needed to work as one until the detergent’s chemistry and film intertwined in synchronicity, as any small change to the detergent’s chemical makeup also would mean a shift in the film’s chemistry. Today, Tide Pods is a $500 million brand currently only available in a single market.
Through these examples, it’s apparent that ultimately the more strategic yet creative procurement’s relationships with suppliers become, the more innovation it stands to create. But how do we judge a relationship as strategic?
Speaking in Procurement Leaders Magazine the July/August 2015 edition, Jonathan O’Brien CEO of Positive Purchasing wrote in the article, Changing world, changing risks, “It’s a common mistake to classify suppliers who might be important in some way, say, due to a very high spend, as strategic. The suppliers who are truly strategic are those we could not exist without or those with the potential to add significant value to our business, if we collaborate with them. … If you are to realise the value of strategic suppliers, you must drive a close collaborative way of working that is at polar opposites to the traditional arm’s-length relationships.”
Sounds easier said than done? Change is never easy and is full of minefields.
John Paterson, the Chairman of the Procurement Leader advisory board forewarns in the Procurement Leaders July/August 2015 article, Innovate or exterminate, of potential challenges, such as ownership surrounding intellectual property or a company not having the skills needed to recognise and promote supplier innovation. Still, he says, “All these can be addressed and resolved, as indeed they need to be if we are to attract and retain the best talent and to maximise the contribution of procurement and its supply base.”
While SRM is only one sword in a company’s arsenal, it’s incredibly sharp and effective when done right. Of course the ultimate weapon is Vizibl, where better performance, innovation, risk management and a Return on Relationships are ready for duty.