Supply Chain World - Volume 7, Issue 3 - 25

BEST PRACTICES

or micromanage suppliers in this environment. And yet, many organizations
continue to apply these short-sighted
approaches to supplier relationship
management (SRM). SRM is the discipline of strategically managing all
interactions with third-party suppliers
to maximize value. The application of
formal SRM is gaining momentum -
but unfortunately, most organizations
are stuck on the approaches and objectives of the past.
An APQC poll found that among organizations with SRM approaches in place,
80 percent rely on SRM to reduce risk
and 72 percent rely on SRM to monitor
contract compliance and service levels.
These are dangerously outdated focus
areas for organizations in 2019. Shifting
risk onto suppliers and micromanaging
contract terms is counterproductive and
prevents SRM from delivering maximum bottom-line impact.
Leading-edge organizations apply
SRM to drive innovation and competitive advantage, and the key to
their success is building collaborative
relationships with strategic suppliers.
In SRM, collaboration does not mean
compromise or the absence of conflict.
It's not a mindset or a slogan, and it's
certainly not a one-size-fits-all approach to be used with every supplier.
Instead, collaboration is a relationship
model - built on guiding principles and
reinforced through key behaviors - that
allows buyer and supplier to realize
mutually beneficial outcomes. In short,
it's a win-win.

Start at the Beginning
It's little wonder that traditional SRM
often yields frustration and disappointment for both parties: It applies only in
the final phase of procurement, after
expectations and contract terms have
been set. To build collaborative relationships with suppliers, you need to start
at the beginning and focus on the bigger

Building collaborative
relationships takes time and
effort, so you cannot invest in
collaboration with all suppliers.

picture: the potential for an enduring
and mutually beneficial partnership.
First, you need to identify candidates
to collaborate with. Building collaborative relationships takes time and effort,
so you cannot invest in collaboration
with all suppliers. Buyers can maintain
transactional relationships with suppliers that provide low-cost, standardized
goods in saturated markets. However,
collaborative partnership is required
when working with suppliers that are
essential to the achievement of organizational objectives. Scrutinize these
strategic suppliers not only in terms of
price and quality, but also trustworthiness, transparency and compatibility.

Establish Guiding Principles
Almost every buyer/supplier relationship begins with two distinct visions of
desired outcomes. To build a collaborative relationship, buyer and supplier must align on a shared vision and
establish guiding principles that will
enable the vision. The principles will
guide partners not only throughout the
negotiation process, but throughout
the term of the relationship. A clearly-defined and mutually-agreed-upon
set of guiding principles is necessary to

prevent opportunism and competitive
tit-for-tat moves.
Guiding principles can and should be
unique to each relationship, but those
defined by supply chain management
researcher Kate Vitasek as part of the
Vested model are an excellent starting
point. Vitasek identified six guiding
principles that help partners build and
maintain trust:
1. Reciprocity - parties will make
fair and balanced exchanges in the
acceptance of risk and investment
of time and money.
2. Autonomy - parties will work as
equals and abstain from self-interested power plays.
3. Honesty - parties will be transparent about their capabilities, intentions and experiences.
4. Loyalty - parties will be loyal to the
relationship and its objectives.
5. Equity - parties' risk and reward
may not be equal but will be equitable and fair.
6. Integrity - parties will commit to
consistency and trustworthiness in
their decisions and actions.
The parties can negotiate as partners to
determine the scope of work, pricing,
VOLUME 7, ISSUE 3 Supply Chain World

Supply Chain World - Volume 7, Issue 3

Table of Contents for the Digital Edition of Supply Chain World - Volume 7, Issue 3