Over the last few years, I’ve been fortunate enough to have researched and delivered a number of presentations and workshops on Supplier Collaboration, and if you will excuse the buzz word, managing the “ecosystem”. This is a particular passion of mine, and I am confident that the businesses that thrive will be those that not only manage their internal affairs well, but also make the best use of suppliers to bring the agility and innovation required to create new products, services, and open up new markets. – the evidence is there.
In terms of importance, I’d go so far as to say that embedding collaboration into business (and procurement) is at least as important as the technological advances that are happening around us. Fail to embrace one (collaboration or technology), and organizations will slowly die. Fail to embrace both and they will quickly die. Don’t worry…it’s the upsides that are more exciting.
In overly simplified terms, where technology is an enabler, supplier collaboration goes deeper into strategy, ethos, skills, technology, and change. For many of us in Procurement, the change is seismic; it goes against the core purpose of many of today’s Procurement functions, but for some of us it’s the key to a hugely exciting future.
The following model was originally developed for a session focused on supplier management, first delivered at The Conference Board.
The model summarizes the key changes a commercial function needs to make to move from administering supplier relationships (G1), through supplier management (G2), and into supplier collaboration (G3). If this is the summary, the subsequent deep dive looked in more detail at what sits behind each of these boxes. What have other organisations done? What’s the change to make? How do they move beyond the text book and into corporate DNA?
We’ll deal with that later. First, we need to answer three questions:
- What is collaboration – and what is an ecosystem?
- Why collaborate – what is the compelling evidence from past experience?
- How do you get there – what are the maturity lessons from others?
1. What is collaboration – and what is an ecosystem?
Generally, supplier collaboration occurs when working with one or more suppliers closely, in pursuit of a common, shared objective. Looking at the image above, the relationship probably carries two or more of the traits in G3 (the collaboration zone) moving beyond a traditional buyer/supplier relationship.
The more players involved and the more complex it becomes, the more likely it is to be an “ecosystem”. The term ecosystem is a fashionable and loosely applied label, often to add gloss. Not everything is an ecosystem, but if you follow the guideline that it is 1) a number of partners, who are 2) interconnected and interdependent, 3) in pursuit of a common goal, then you would find it hard to go wrong.
2. Why collaborate – what is the compelling evidence from past experience?
What strikes me is the correlation between organization that collaborate well, and those that are healthy and/or high growth. Some of the world’s key growth businesses are experts in using supplier networks in pursuit of something that could not (easily) be achieved as quickly or as well, in house. It’s not a new phenomenon, but what is new is the scale and speed at which the impact is seen.
A great example of this would be Dollar Shave Club, famously started with a small amount of seed capital and a marketing video that cost $4,500. They sold to Unilever inside 4 years, making them the 1$bn shave club. Whether they knew it or not, by looking differently at a problem and thinking of alternative ways of solving it, they created a marketing and logistics business that was able to get to market several times faster than a traditional personal care brand, Gillette, and at a fraction of the cost.
Further examples would include everyone’s favorite: Uber. When you break down Uber, its essentially a business built on seemingly disjointed suppliers: a paymentuberts platform, manual labor, GPS, network providers, smartphones, and vehicles. Knit together, you have a new customer offering that looks at a traditional problem in a more convenient way, and is highly scalable. Additional modern examples include Huawei, Philips, Didi Chuxing, and likely most other high growth tech firms. Essentially they follow a processes of specializing and then collaborating to create best of breed solutions in an agile way. It’s the principle of customer economics at its finest.
Collaboration, enables specialization, which enables innovation, efficiencies, agility, and so on.
So go forth and collaborate, right? Maybe not…if it was that easy, we’d all be doing it.
3. How do you get there – what are the maturity lessons from others?
When taking lessons from the past (Chrysler, Shell, Toyota) and several from the present, we found three core truths:
- We came across stories of industry leaders who settled on driving the lowest cost and highest profit for a market leading product that quickly came under threat from challenger businesses, and did not know how to innovate, nor have the supplier relationships to enable innovation.
- We encountered a number of organizations that had gone all out collaborative in their approach to suppliers. While initially that approach enabled high growth, having failed to put the basics of good procurement or supplier management into place, they were inefficient and chaotic behind the scenes, and became less competitive and agile once the challengers appeared.
- We found that among larger organizations, those that were doing collaboration well learned the lessons and earned the right to be there. Typically they understood the difference between supplier management and supplier collaboration, and had deployed different strategies and teams to do each. They also (mostly) understood that traditional segmentation may neglect innovation; the largest, or most critical suppliers often have the most to lose rather than the most to gain from innovation.
What’s next? Unpacking the five traits of collaboration
Remember we said we’d get to that later? In part two, we’ll go specifically in to the five traits mentioned at the top of this article: strategy, ethos, skills, technology and change. We’ll look at each one and discuss what master collaborators have done to move beyond management and into growth oriented relationships. We’ll also cite examples of simple things that Procurement functions did to get started with changing perception within their organizations.
But for now, I’ll leave you with five thoughts from this introduction:
- It’s survival of the fittest out there today and suppliers increasingly hold the key
- It you don’t optimize supplier relationships, you risk a slow journey to corporate irrelevance
- There are numerous examples of how businesses are using suppliers to drive innovation, growth, disruption, and cost efficiency
- Collaboration is not supplier management. They are different, but it helps to understand both
- Technology will enable your change, but its about much more than that