Executive Briefings

You Get What You Pay For

Analyst Insight: Today's strategies for managing suppliers are incomplete. Too much emphasis has been placed on using power to gain leverage over suppliers. But this strategy doesn't work in every situation and care has to be taken to architect the right kind of relationship. Power stymies the development of truly collaborative and strategic relationships. These relationships can produce outcomes well beyond what one firm can do by itself. - Karl B. Manrodt, Professor of Logistics and Supply Chain Management, Georgia College & State University

You Get What You Pay For

For the past ten years my colleagues and I have studied some of the best outsourcing relationships out there. After 3 1/2 years of analyzing and mapping buyer / supplier relationships, we found collaborative relationships that yielded great results. These findings are detailed in our book, Strategic Sourcing in the New Economy, on strategic sourcing business models that help suppliers and buyers build relationships that are mutually beneficial. Why does this matter, especially in 2016?

It is not a make or buy world. Previously, the choice was easy: make it or buy it. Today, tasks are much more seamless, with suppliers intertwined with the very fabric of the firm. Sometimes it is difficult to tell who is who. Suppliers answer our phones, handle technical support, manage our DCs and clean our facilities. They are on the front line interacting with our customers, and the last ones we listen to or talk to about innovation. All of them create value – and can create more if the right sourcing business model is in place. This requires us to have a more deliberate process to see where suppliers can add value.

Power works - but not all of the time. Welcome to 2016. For too long professionals have relied on power-based methodologies to manage suppliers. We exploit suppliers when they are down, and when the winds reverse we hope they have a short memory. Power can certainly work - in some conditions. Yet, in our fast-changing world, power will undermine trust and mutual cooperation. Suppliers remember your Mr. Hyde moments when buyers try the temporary transformation back to Dr. Jekyll. Who wants to work for a buyer with a dissociative identity disorder?

Collaboration is more than a buzzword. Collaboration - if architected correctly, can yield different results - results that neither a supplier nor buyer could accomplish alone. Sir Edmund Hillary couldn’t climb Mt. Everest alone; he needed Tenzing Norgay. Together they conquered what was previously unachievable.

If firms are going to truly develop long-term, strategic, collaborative relationships, they will need to change both how they manage the supplier as well as how they reward their supplier for the results. This means they have to determine the right kind of relationship they want with the supplier and then pair it to the appropriate economic model. In our work we find buyers who are upset with suppliers who don't share any innovative ideas with them, yet fail to see that the supplier has no incentive - and in many cases disincentives - for making things better.

The Outlook

In 2016, Goldman Sachs suggests that “flat is the new up” when it comes to the economy. We might see 2.4 percent growth, and all the gyrations and uncertainty that go with an election year. Companies will feel the pressure to grow their bottom line. This won’t be accomplished by powering over suppliers who face the same pressures in their company. Only by working together can buyers and suppliers reach their mutual goals and create lasting value. Wouldn’t 2016 be a great time to start?

For the past ten years my colleagues and I have studied some of the best outsourcing relationships out there. After 3 1/2 years of analyzing and mapping buyer / supplier relationships, we found collaborative relationships that yielded great results. These findings are detailed in our book, Strategic Sourcing in the New Economy, on strategic sourcing business models that help suppliers and buyers build relationships that are mutually beneficial. Why does this matter, especially in 2016?

It is not a make or buy world. Previously, the choice was easy: make it or buy it. Today, tasks are much more seamless, with suppliers intertwined with the very fabric of the firm. Sometimes it is difficult to tell who is who. Suppliers answer our phones, handle technical support, manage our DCs and clean our facilities. They are on the front line interacting with our customers, and the last ones we listen to or talk to about innovation. All of them create value – and can create more if the right sourcing business model is in place. This requires us to have a more deliberate process to see where suppliers can add value.

Power works - but not all of the time. Welcome to 2016. For too long professionals have relied on power-based methodologies to manage suppliers. We exploit suppliers when they are down, and when the winds reverse we hope they have a short memory. Power can certainly work - in some conditions. Yet, in our fast-changing world, power will undermine trust and mutual cooperation. Suppliers remember your Mr. Hyde moments when buyers try the temporary transformation back to Dr. Jekyll. Who wants to work for a buyer with a dissociative identity disorder?

Collaboration is more than a buzzword. Collaboration - if architected correctly, can yield different results - results that neither a supplier nor buyer could accomplish alone. Sir Edmund Hillary couldn’t climb Mt. Everest alone; he needed Tenzing Norgay. Together they conquered what was previously unachievable.

If firms are going to truly develop long-term, strategic, collaborative relationships, they will need to change both how they manage the supplier as well as how they reward their supplier for the results. This means they have to determine the right kind of relationship they want with the supplier and then pair it to the appropriate economic model. In our work we find buyers who are upset with suppliers who don't share any innovative ideas with them, yet fail to see that the supplier has no incentive - and in many cases disincentives - for making things better.

The Outlook

In 2016, Goldman Sachs suggests that “flat is the new up” when it comes to the economy. We might see 2.4 percent growth, and all the gyrations and uncertainty that go with an election year. Companies will feel the pressure to grow their bottom line. This won’t be accomplished by powering over suppliers who face the same pressures in their company. Only by working together can buyers and suppliers reach their mutual goals and create lasting value. Wouldn’t 2016 be a great time to start?

You Get What You Pay For