KIRAN MATHUR MOHAMMED
No wide-eyed child ever has dreamt of a grand future in procurement. But by not calling up their suppliers, businesses are leaving billions on the table.
A recent Coresight research report focusing on consumer retail found gains of up to 20 per cent through simple supplier collaboration.
But what exactly does that mean? Simple: each supplier, investor, and employee is a route to potential customers.
Seems straightforward, but how many companies are really enlisting their supply chain in the cause of growth?
Finding new sales in an economy that has been as stagnant as ours has been was always going to be difficult. But even those firms that are offering genuine value make it harder on themselves by ignoring the people who have immediate financial interest in their growth: their suppliers. It is much easier to get someone to pick up the phone and listen to you if you have already bought something from them and are likely to continue to do so.
Each person who sells you something has a direct interest in helping your company grow. The bigger your sales, the more you will buy from them.
Companies can unlock tremendous growth if their purchasing folk sit down with their sales folk, make a list of everyone the company buys from, narrow down the prospects, and start making calls together. The most basic pitch: the more I sell to or through you, the more I will buy from you.
Of course, internal incentives matter as much as external ones. The unfortunate reality is that in most companies, procurement teams don’t have the same incentives as sales teams.
In an economy this hard we can’t afford to let this get in the way any more. Leadership must get stuck in to slice through mis-matched intra-company incentives.
If done right, a good supplier relationship can reduce the risk of new investments and unlock value for both parties without the need for extra cash.
In a simple example, a restaurant can call up the neighbouring grocery that supplies most of its ingredients and ask the grocery manager to encourage their employees to eat lunch there. This is in the direct interest of the grocery – which will as a result sell more food, which will ultimately benefit the grocery employees.
This can be tested for a few weeks, and on the strength of that, the restaurant may well decide to invest, for example in a bigger oven and diversify into biscuits.
It is ultimately through these micro-changes writ large that our economy grows.
Consumer manufacturing has historically been better at this type of thing. Unilever and P&G, for example, have thousands of brands and must keep cooking up and shipping out a steady stream of new products at short notice. This forced the need for supplier collaboration early on.
In one example, highlighted by the wonks at Mckinsey in a June paper with Michigan State’s professor of purchasing and supply management (try saying that five times quickly), Unilever rang up their enzyme supplier Novozyme and fed them information on what types of stains and materials their clothes-washing customers interacted with day to day.
This resulted in two new enzymes that were able to clean clothes at lower temperatures. The result: more environmentally friendly products, in line with Unilever’s push to capture higher-end, environmentally conscious consumers.
Of course, some suppliers might worry about upsetting their other customers if it helps any one of them to get the edge over another.
That’s why the partnerships that work best are with companies that are working to expand the market, rather than just grab market share.
Supplier collaboration is also most effective when the values each side would gain are most aligned. You can’t do it with just anyone. Test the waters with your largest and closest suppliers. Building trust is a slow process – a good place to start is with informal strategic understandings.
In our perennially short-foreign-exchange environment, more and more people are interested in moving away from selling or distributing and moving towards producing and manufacturing. If we can unlock the siloed knowledge currently residing in our untapped supplier relationships, companies will find it much easier to do so.
This is in the grand tradition of successful industrial clusters from South Korea’s Chaebols (conglomerates) to Germany’s Mittelstand (mid-sized manufacturing companies).
For too long, supply-chain management has been thoroughly ignored as just another dull operational matter. But this year, it literally saved the world from a global pandemic, resulting in grand innovations and treatments in record times.
It is time we woke up to its potential and picked up the phone.