Article originally published by, and permission to publish here provided by, Sam Jenks at kodiakrating.com.
“Fish are friends, not food.”
Bruce, a great white shark, and his two shark friends gather alongside Dory and Marlin, taking a sacred oath, swearing off eating fish. This scene became an instant classic in the homes of the hundreds of millions that have seen Pixar’s mega-success, Finding Nemo.
If you’ve never seen the film, treat yourself by watching this clip below, and directly after you finish this blog, do yourself a favor and stream the entire film.
Is there something to be learned from this quote in Finding Nemo, that we can apply to procurement and sourcing? As buyer and suppliers aren’t we all living in the same ocean, existing in the same ecosystem, and working towards the same value creation?
Speaking with procurement and sourcing professionals on a daily basis, in my work at Kodiak Rating, there’s a resounding pain point that many organizations are trying to address; figuring out how to combat supply chain complexity, whilst simultaneously enhancing transparency, traceability and building better relationships/collaborations with their suppliers.
SRM and supply chain transparency remains atop the agenda for various organizations, and it’s no wonder!
Procurement and sourcing teams know just as well as I do that they can leverage their supplier base as a source of driving product/service innovation, CSR initiatives, quality assurance, sustainability development, and overall performance. But, they also know that lifting the hood, and building true visibility into their supply chain, might lead to some unforeseen discoveries.
So here we are. A gang of procurement and sourcing professionals with our backs up against the wall, and the fight is at our front door. The common enemy: the complexity of the global supply chain.
The only solution in sight is a united effort.
Whoever said that business needs to be a carnivorous affair? We don’t need to be chewing up our suppliers and spitting them out like fishbones!
Suppliers are our friends, not food!
There was a report from Forbes in 2018 that delved into how much data we create in our personal and professional lives. It was suggested that “over the last two years alone 90 percent of the data in the world was generated” (Forbes 2018).
Every day we allow to go by without the systematic gathering of supplier data, is a day of wasted data.
To ensure that suppliers are leveraged as value creators, you need to have deep business intelligence surrounding their risk, performance, and overall potential for value creation. This, of course, requires a systematic gathering of data at various supplier touchpoints all the way from tender to delivery.
Data should serve as the foundation of all SRM decisions made by your procurement and sourcing team.
Whether you’re looking to consolidate the supplier base, better define your category tree, strategically plot your suppliers within a Kraljic matrix or looking to simply report back certification compliance of suppliers to your board, there’s nothing that will support your decision-making process better than an analysis of defined supplier intelligence.
Data is your friend, and it will show you which of your suppliers are your friends; not food!
Building supplier intelligence in accordance with business-critical goals will allow you to quickly understand which suppliers are rowing, and which ones are creating holes in your ship.
Creating Shared Value
Commercial and societal gains can exist in parallel, and this is the true essence of creating shared value.
“The concept of shared value resets the boundaries of capitalism. By better connecting companiesʼ success with societal improvement, it opens up many ways to serve new needs, gain efficiency, create differentiation, and expand markets” (Porter & Kramer p. 3).
The buyer-supplier relationship is a collaboration during the procurement process that directly impacts societal and commercial gains within various tiers of ecosystems. Therefore, the relationship harnesses a large potential for scaling shared value creation.
Combating complexity by enhancing hands-on buyer-supplier engagement and collaboration, can lead to the development of the supplier base; scaling shared value.
To combat a large, global supply chain, containing a complex network of very locally sourced materials from local suppliers, Nestlé has been required to engage with suppliers actively, rather than beating them over the head in negotiations because their output and efficiency didn’t meet organizational goals and expectations.
Nestlé realized that there was a gross lack of knowledge at various small batch farms who Nestlé relied upon to produce specialized coffees, and the farms were trapped in a vicious cycle of “…low productivity, poor quality, and environmental degradation that limits production volume” (Porter & Kramer p. 6).
Nestlé decided to befriend these suppliers, rather than chewing them up and finding replacements. They looked over their own processes first, before placing the blame on the supplier.
“To address these issues, Nestlé redesigned procurement. It worked intensively with its growers, providing advice on farming practices, guaranteeing bank loans, and helping secure inputs such as plant stock, pesticides, and fertilizers.
Nestlé established local facilities to measure the quality of the coffee at the point of purchase, which allowed it to pay a premium for better beans directly to the growers and thus improve their incentives. Greater yield per hectare and higher production quality increased growersʼ incomes, and the environmental impact of farms shrank. Meanwhile, Nestléʼs reliable supply of good coffee grew significantly. Shared value was created” (Porter & Kramer p. 6).
Understand your position and power
Within buyer-supplier relationships resides a power disposition, which places the buyer or procurement team in the driver’s seat.
Which path will you take at the fork in the road?
Though procurement and sourcing have the pleasure of being the selective party in a buyer-supplier relationship, suppliers can be selective as well. They choose their customers, and it’s best you didn’t forget it!
“When the economy is going well, you might be able to dictate the supplier’s goods and services — and sometimes even the service delivery model. When times get tough (and they can very quickly), suppliers will typically reevaluate your organization’s needs to see whether they can continue service in a fiscally responsible manner. To secure suppliers’ attention in favorable and challenging economic conditions, your organization should establish collaborative and mutually productive partnerships with them” (cerasis 2015).
Buying power must be treated with respect and handled responsibly, keeping shareholder, brand and their supplier best interest in mind throughout the course of a buyer-supplier relationship. It takes 2 to trade, and trade should be utilized as a means of enhancing job-creation, standards of living and economic growth at scale.
Remember this the next time you sit down at the negotiation table with a supplier. There’s an expert sitting on the other side that can equally impact your top-line value.
Suppliers are friends, not food.
Until next time.