If we treated our employees the way most companies treat their suppliers, they’d head for the hills.
The concept of supplier relationship management (SRM) dates back to the early 80s, which makes it almost as old as the broader concept of Supply Chain Management itself. For decades, companies have realized that they can add value by fostering more collaborative relationships with their key vendors. The concept is pretty simple: if you treat your suppliers reactively, only managing the relationship when things go south, you open yourself up to huge risk. If you manage these relationships proactively — if you treat suppliers as partners rather than prey — you’ll lower your risk.
And when it comes to highly strategic categories (like information technology), a great relationship with suppliers can also open up opportunities for innovation. A tightly-integrated supplier base can share new technologies and new ways of doing business. It offers you more of a leg up on competitors than just squeezing suppliers for the lowest possible cost.
But great supplier relationship management – like so many worthwhile things – is easier said than done. As anyone in a large Procurement organization knows, it’s easy to pay lip service to supplier relationship management, but it’s hard to follow through and actually create collaborative relationships. It’s easy to promote Procurement processes that treat all suppliers like interchangeable commodities, and leave the real value on the table.
Sometimes getting past these roadblocks requires us to consider things from a completely different angle. That’s why we found a recent thought experiment by Forbes contributor and SRM expert Kate Vitasek so interesting. The article, “Don’t Treat Your Employees Like Suppliers,” asks us to think about relationships with suppliers in a totally new way:
Imagine that they were our employees.
Here’s the thought experiment: Picture yourself interviewing for a new role. The phone screen goes great. Your interview with HR is uneventful, but successful. The interview with the hiring manager goes gangbusters, and at the end she takes you in to meet the VP who heads the department. Later that week, you receive a job offer with an attractive package.
After a few negotiations, you’re all ready to sign, but when you get the formal employment contract you see a bunch of stipulations you didn’t bargain for:
- You need to agree to a year-over-year 3% salary reduction so that the company can save costs.
- Your new employer can terminate you for convenience anytime within 30 days without cause.
- Two years from the signing date, your new employer is going to issue an RFP to see if they can find a better employee to replace you, and you’ll have to go through a competitive bidding process to keep the job.
- Your employment is subject not to normal oversight, but service level agreements – what time did you come to work? How many coffee breaks did you take? – with hardcoded financial penalties for falling short.
- You’d need to absorb cost of living increases to keep the relationship competitive for your employer, and;
- You’d need to maintain personal liability insurance to guard against any mistakes.
As a professional, would you take that offer?
If the answer is “no,” – and for any self-respecting professional, it probably should be – then think about how a supplier feels when they’re on the other end of a similar contract.
How can a supplier feel like a strategic partner when they’re being squeezed at every stage of the process?
Vitasek ties this analogy into the war for talent, a phrase coined by McKinsey & Company in the late 90s. This idea shifted companies’ perceptions of hiring and talent retention, and has had some real benefits in recruitment and how they treat their employees. In the old model, companies had the attitude that an employee is just lucky to have a job. If they don’t like poor conditions, there’s another person waiting to fill the gap. The trouble with this model isn’t that it’s just inhumane, it’s also bad business: successful companies gain competitive advantage by competing for the top people in a field. The most strategic. The most innovative.
And the only way to get those people on board is by treating them like, well, people. Since this shift, many (but not all) of the top companies have gained huge benefits by offering employees better work/life balance, more autonomy, and a less formal working culture. They’ve become focused not just on employees’ raw productivity, but on fostering relationships.
Vitasek’s point is simple: when we adopt the mindset that suppliers should “just be happy to have the contract,” we’re applying the same faulty thinking, and reducing the incentive for the top suppliers to want to work with us.
For sure, there are some Procurement categories and supplier bases that are commoditized (most obviously, ahem, commodities), but Vitasek makes the point that the majority of companies have another set of suppliers who are strategic. Those are the suppliers where the relationship needs to be different than the commodity suppliers.
The way to boost these relationships – to make them sustainable and collaborative rather than adversarial – is with SRM. Companies need to take a closer look at their most strategic supplier relationships, as well as their Procurement processes, and ask themselves whether they’d treat their employees the same way.
We encourage everyone to check out the original Forbes article (it’s great), and also to let us know your thoughts in the comments! Does this analogy speak to you? Agree? Disagree? What kind of supplier relationships have you seen in your own career, and how have you tried to improve them?