There’s a mentality among some professionals that suppliers and vendors need to be squeezed in order to drive better pricing and higher accountability. In some companies, there are even procurement and purchasing departments set up to basically focus on squeezing the most juice from 3rd party companies with the goal of spitting them out when it’s all said and done. One retail customer I know is almost proud of the way they put manufacturers “through the grinder” in order to save the maximum amount on the purchase price.
It’s commonplace to see companies trying to add value to their organization by devaluing those they partner with—this is not a best practice, it’s more like a dark art.
This approach may work for commodity items but it’s incredibly dated thinking and it fails miserably if a company is aiming to grow long-term. It’s also cancerous to working relationships and builds mistrust as each side begins to play pricing games.
There’s a different way—becoming an Expansionist Enterprise.
An expanding, and healthy, enterprise works collaboratively with their supply chain partners to find better solutions and more efficient and effective ways to grow each other’s businesses. Notice I didn’t just say their own business. A true “partner” has the best interest of the other party in mind as much as their own.
Whole Foods works well with smaller local producers of foodstuffs and pays them very fairly. They help them understand transportation, packaging guidelines and even coach them in retail strategies. It can be difficult to work with smaller suppliers who don’t have the administrative support or skill sets in-house but Whole Foods invests the time to do this in order to endear loyalty—loyalty leads to securing products first, being notified quickly of issues, gaining delivery efficiency and ultimately good pricing as there is a foundation of trust.
IKEA is another great example of training and even building manufacturing facilities for suppliers to ensure they can make and deliver products efficiently and consistently for them. There’s an eco-system of interdependence and each of them is trying.
Smaller businesses increase their growth potential when each role player in the supply chain can help each other. Partners can provide active referrals, communicate and think about ways to streamline processes, create joint ventures on common capital equipment purchases, share costs of professional development expenses—you name it!
On a recent trip to Toronto, I visited one of our flexo packaging suppliers (AlphaPoly). We met with the president and his team, toured the facility, and talked through the relationship and how we (as an agency) can improve. Next, we talked with their production team on the types of packaging design and processes that could maximize their machining capabilities, save costs on colour plates, and how to cut down their costs in order to save our clients money. We finished with discussing ways to enhance communication on projects that require tighter deadlines in order to save time!
My advice to you is to set-up meetings with suppliers along your value chain and get to know them; engage with them in a collaborative and forward-thinking way. If you’ve worked with them for a while and feel there is good trust, take it to the next level of “Expansionist”.
Ask them 5 key questions:
1. What challenges do you face that we might be able to help you with?
2. Are there ways to create better savings and profit for each other?
3. How can we improve your customer (not just price)?
4. Are there other businesses and people in our network that could potentially help grow your business?
5. Are there projects or initiatives for each other’s businesses that could make sense for us to work together on?
Every business and relationship needs to have mutual accountability and price will always be that main source of business. However, as leaders, our bent should be to expand and not to squeeze relationships. We need to think about new possibilities that could make us more competitive in the market long-term—together.
Let’s not forgo future gold for pennies in the present.