How Companies Can Strengthen Supplier Collaboration
September 15, 2020 | By Kweilin Ellingrud, Forbes
The lack of resiliency in supply chains is one of the most pervasive vulnerabilities in business operations uncovered by the COVID-19 pandemic. There is now widespread recognition of how intricate and geographically broad supplier networks really are, which has driven resiliency to the top of the C-Suite agenda. In jump-starting resilient operations, businesses have naturally focused on supply-chain risk management—especially on filling gaps in underlying digital and analytics capabilities. But there’s another element that deserves attention as well: enabling genuine supplier collaboration.
Many companies with advanced procurement functions understand that the relationships between buyers and suppliers can increase resiliency, generate new value, and effectively decrease cost. In a McKinsey survey of 100+ large companies across sectors, companies that regularly collaborated with suppliers had higher growth, lower operating costs, and greater profitability than other competitors in their sector.
Leading companies are looking for new ways to collaborate with existing suppliers. But there is also an opportunity to cultivate supplier relationships that are more collaborative from the start. One approach is to seek out minority and women-owned businesses that have been overlooked in the past.
Supplier collaboration with a racial equity lens
Benefits of effective collaboration can include growth, innovation, productivity, and the quality of products and delivery. A lesser discussed benefit is the opportunity to support local, minority-owned businesses. Supplier diversity can enhance a company’s supplier network and support local economic development.
The need to approach recovery with a strong equity lens is critical, particularly in a time when small, minority-owned companies may be most at risk in the wake of COVID-19. Many minority-owned small businesses were in financially precarious positions even before COVID-19 lockdowns, and often are in industries more susceptible to disruption. This is all the more critical as minority-owned small businesses are an essential job source, employing more than 8.7 million workers and annually generating more than $1 trillion in economic output.
Many of these businesses can face a significant challenge gaining access and securing a large company as a client. To ensure these businesses survive in the current circumstances will require more than an incremental increase in transactional spend. Company leaders are making it a strategic business priority and rigorously tracking their purchasing spend with diverse suppliers. This level of supplier collaboration can help the smaller supplier establish a stable revenue stream, build credibility for investors and clients, and generate job growth in the community, all critical components of resiliency.
A tried-and-tested approach to supplier collaboration
Companies have struggled to successfully integrate supplier collaboration into their procurement and supply-chain strategies to capture the value on the table. Often times, leadership teams will prioritize simpler initiatives, with shorter timelines to execution, versus more complex projects like supplier collaboration that require a heavier lift to execute, even if the latter is likely to produce greater returns. When the benefits and outcomes of partnering and deeper collaboration are unclear, it makes it more challenging to prioritize in terms of talent and investment.
One of the notable assets in my home state of Minnesota is the substantial number of Fortune 500 companies. Even though economic data showed that increasing procurement spend locally would put more money into our regional economy and support job growth, sourcing departments at large companies throughout the state face significant challenges in sorting through potential suppliers to find qualified and competitive suppliers capable of meeting their needs.
A program called Business Bridge was conceived to bring large and small companies together in Minnesota to effectively build new purchasing relationships. A Supply Chain Executive Council comprised of more than a dozen chief purchasing and supply chain officers from Minnesota’s largest companies has been established to provide strategic direction and oversight to the effort. The Council has made progress toward setting ambitious goals and developing practical approaches to incorporate Business Bridge principles into procurement practices. Council companies collectively set a goal to buy $10 billion with Minnesota and Wisconsin based companies, an increase of $3 billion of incremental spend from 2012.
Now, in the wake of the most recent demonstrations and push for racial equity and genuine diversity, many companies are looking to track procurement spend with greater granularity. Instead of simply local spend or spend with minority-owned businesses, they are looking to understand how much they spend with Black-owned businesses, or women-owned businesses, or other types of diversity at a more specific level.
A company culture that is too inwardly focused, resistant to change, or does not typically work in cross-functional ways can hinder efforts to increase collaboration. Deep collaboration that creates value for both buyer and supplier requires cross-functional teams where both parties work together in a way that is not simply transactional and has aligned incentives. In essence, strong collaboration requires effective communication and trust that is built over time.
When done well, collaboration can create a competitive advantage. Exploring the full set of opportunities to partner with suppliers in unique ways—both to create value for the company and to increase racial equity—is an area of opportunity that should not be overlooked.