Buyer and suppliers: a collaborative alliance

Collaboration between both ends of a business deserves to be nurtured and is key to reinvent a long-lasting and promising coexistence

By Marcelo Pereira, Supplier Management Director at Mercadoe

 

By all accounts, the prelude to collaboration is a closer interaction between two or more companies, leveraged by technology. No matter the time period and goals of the business relationship, a healthy partnership is a corporate asset and, in a global economy, is also a competitive edge.

A report published by the intelligence unit of the The Economist (the financial British magazine), shows that to increase productivity, construction companies must invest in collaboration, by joining the culture of shared risks and rewards. According to that report, any possible barriers between both ends of a business should give way to “building long-term relationships that will allow identifying improvement opportunities”.

This assumption shall be taken into account by all sectors, considering that the buyer-supplier relationship was relegated to the background during the post-2008 period. In fact, during the crisis established in that year, the forecasts of economists indicated the extinction of long-term relations between buyers and suppliers, caused by the fight for the largest market shares.

The forecasts, however, proved to be wrong as they failed to anticipate that supply chains would manage to cut expenses and maintain their profit margins, even if in a hard way. Still in opposition to the prognoses, the relationship between all those involved in the supply chain returned to the forefront when such people began to create disruptive ways of working in a collaborative mode.

More specifically, while some partnerships deteriorated during that period, most of them survived the crisis thanks to factors that go beyond the purely economic aspect, something that is difficult to consider, especially in times of financial stress. The fact is that most companies have endured the recession period due to policies aimed to reduce risks and uncertainties of the environment – which is achieved with good relationship between buyer and supplier.

Collaboration in a changing scenario

The current economic scenario proves that traditional models are less prone to work. This incentive was the missing part needed to face alliances between buyers and suppliers in a different way.

To mention just one example, a major technology company announced in 2010 its commitment to ensure the highest standard of social responsibility in its supplier network. In that same year, however, the media revealed a series of suicides related to working conditions of the Chinese manufacturer who produced most products of that company. The headlines revealed also that three other suppliers were employing minors.

The traditional approach left to be desired in this case. The case exposed flaws in the audit of facilities, in the compliance with labor standards and in the environmental standards. If the situation had been detected before coming to public, the result would be the immediate termination of contracts.

The current company vision is different, as we can see in its supplier policy report. Most surprising was, however, that in spite of mastering leading-edge technology on a daily basis, it seems that the company had forgotten to make an effective assessment of its suppliers and third parties.

With an assertive management of such processes, the company would have everything recorded: from documentation to control audits, based on financial, labor, fiscal and social-environmental criteria. Currently, several technological solutions allow the right selection of suppliers and the management of their performance.

Using value in your favor

Relationships in the best supply chains are based on consistent value delivery. This value can be based on factors such as aggregated services, quality and regular deliveries.

It’s value that makes buyers increase, in the long term, the percentage of purchases from individual suppliers. When a buyer focuses the purchase of a given material in a specific supplier, a mutual advantage is established, as long as the relationship is reliable. In addition, the buyer is able to circumvent the side effects of competitiveness and increase his efficiency.

Another way to build a collaborative relationship between buyer and supplier is to invest in lower operating costs and develop innovations in products and processes.

Securing new accounts in a tight economy can be a challenge, even in emerging markets. As a result, some suppliers are focusing their sales efforts on existing customers.

And to assure the loyalty of these customers, the supplier must offer more value-added solutions than his competitors. Although price is important, it shouldn’t be the determining factor of choice.

Every action generates a reaction

If the buyer-supplier relationship was once considered a single event transaction, now it’s facing the need of being more collaborative. Although the practice is still little used by Brazilian companies, some few visionary ones invested heavily on such alliances.

As we have seen, the possibilities are unlimited in this field. But how can we expect the supply chain to behave in a collaborative way when trade agreements relay opposite messages?

The correct formula here is to make sure that the agreements have collaboration as key assumption, considering that the adopted business model acts as a model of behavior.

Agreements that support intrinsic collaborative principles are naturally converted into collaborative agreements, risk management and sharing, incentives, goal cost with pain sharing, fair payments, and project guarantees.

A fine-tuned alliance leads to predictable behaviors, which encourages trust and commitment among members of the supply chain. Another clue to keep a solid relationship and ensure its continuity is to stick not only to the procurement phase, but also manage the relationship over the entire supply period.

Leading by example

However, requiring more effective supplier action wouldn’t be enough, if leadership within the organization and the supply chain fails to demonstrate it. Collaborative research on oil and gas operators and oil service companies showed how this happens in the real world.

The report indicated that while the value of collaboration and the peculiarities to put it into practice had been recognized, a small portion of interviewed employees included it in their business strategy. Despite this, few of them have sought collaboration opportunities – which proves that this potential exists when the right leadership and incentives are also on the agenda.

This example stresses the idea that a business alliance is more than a sealed business. It is a complex connection between independent companies, a living organism that evolves progressively, along with the possibilities it offers.

And to dive in this universe, managers need more than specific, routine skills. Flexibility and openness to see particular advantages at commercial borders, as well as sensitivity to political, cultural, organizational and (above all) human matters are indispensable.

Before this can happen, being collaborative in the relationship between companies only won’t be enough. There must be first internal collaboration between various departments. Risk management and governance begin with members of senior management, CEOs, CPOs, CFOs and board members, before moving on to legal, compliance, human resources and, in some organizations, SSO and environmental areas.

The process is still in its beginnings in Brazil. But with time people will see more than the company logo on a business card. They will also see all the other companies it carries along.