Key Partner Management Philadelphia PA

Much to the delight of their CEOs and other stakeholders, procurement leaders have been sourcing the supply base to deliver high-impact cost reductions for years. But in many cases, these efforts have rationalized supply bases and concentrated spend in key strategic areas, limiting the potential for further meaningful cost reductions. Now, CEOs are demanding that procurement continue to reduce costs and add value from the supply base through innovation, risk management, outsourcing, and structural competitive advantage. To date, this has generally proven to be easier demanded than achieved.

Procurement clearly knows how to achieve cost reductions through sourcing efforts. Yet many embedded key suppliers have been strengthened to the point that their customers can no longer use competition to drive further cost benefits. Thus, value-creation efforts are increasing in importance with these and all other suppliers. But while there is a well-established sourcing process that companies have used to cut costs, there is not yet a similar route mapped out in the marketplace to drive value from key partners. As one client, a Fortune 100 executive, recently remarked, "We've sourced our suppliers; we need to drive value from the relationships without threatening to take the business away." While today's procurement leaders know what they need from key suppliers, they do not yet have a defined methodology to help them execute on that understanding.

Several pioneering procurement leaders have succeeded in establishing collaborative relationships with select key partners-relationships that have led to continued cost reductions and value beyond cost. From distinctive automotive headlight design to innovative consumer beverage packaging, select suppliers have demonstrated an increased acumen for developing and sharing new technologies and capabilities that can help their key customers increase their market share or brand image.

Two-phased Approach

These breakthroughs demonstrate that collaborative value creation with key partners can work. But as another client from a major corporation has noted, "We've had some success with one-off partner development exercises, but have struggled to create a consistent approach."

In response to this dilemma, the emerging leadership practice is a repeatable two-phased approach, as shown in Exhibit 1. Phase 1, Getting Ready, segments suppliers, identifies potential partners, and installs key enablers. Suppliers in the upper right quadrant of the chart are the best candidates for key partnership development because of their relationship value to the business (that is, annual trade volume) and their complexity/criticality (for example, a source of absolute "must-have" supply or some advanced capability not otherwise available).

Phase 2, Getting It Done, is composed of three streams:

• Relationship approach-engages individual key partners in a fact-based, systematic and collaborative process.
• Community approach-organizes a group of partners into an ecosystem to facilitate value around a key theme.
• Organize for success-designs a comprehensive operating model to sustain the process. This operating model includes decision support technologies, metrics, governance, culture, and organization.

Many companies are already farther along the path to collaborative value creation than they may know, as the initial step centers on determining which suppliers are best suited for partner status. This is accomplished through a segmentation effort similar to that conducted early in a sourcing effort. The analysis drives decisions around which suppliers should be considered for value-based partnering or as members of a value network and which should continue to be managed along more traditional, cost-based lines.

In parallel with the segmentation, companies may be well advised to embark on a skills development or enhancement effort. In particular, a certain degree of salesmanship will be required when initiating talks with potential partners. While some suppliers will push for and eagerly discuss collaboration and partnering possibilities, others will understandably shy away from such activity after years of being beaten down on costs. Those buying companies that have been especially zealous in their sourcing efforts may find that their reputation precedes them and makes partnering a very hard sell in the supplier community.

For those select key partners with which a relationship approach is appropriate, an early step is to analyze and understand the current situation. Some key areas that need to be explored include:

• How can current performance be improved?
• What supply industry trends may impact the supplier's competitiveness?
• Which party has more power in the relationship today-the supplier or the customer?
• What is the total partner value delivered by the supplier today? How much does a company buy from them, sell to them, innovate with them, sell to others with them?
• What do suppliers think of the company (voice of the supplier) and what do internal users think of them (voice of the customer)?

The community approach simultaneously targets and engages multiple suppliers under a common theme or goal, be it as broad-based as minimizing the carbon footprint around manufacturing or as specific as the design of a new sub-assembly for a product. In these systematic collaborations, suppliers will be expected to work together on new ideas across corporate functions and to submit them to the buying company, with the understanding that benefits will be shared. This concept is not as radical as it may initially appear. Consider, for example, the way in which some consumer packaged goods companies work with multiple advertising and marketing agencies in parallel with suppliers, contract manufacturing, packaging designers, packaging manufacturers, media buyers and others in collaboratively executing the launch of a new product.

The operating model needed to sustain these relationships will vary from company to company. Key design considerations include:

• Decision support tools/technologies-supplier scorecards based on collaborative technologies.
• Measurement-total partner value metrics in place to monitor mutual performance and inform interlocking incentives.
• Governance-executive relationship sponsors from outside procurement.
• Culture-external partners treated like employees.
• Organization-delineation between sourcing and key partner management.

A consistent approach and "right-fit" operating model are just part of what it will take to make these types of partnerships work. At many companies, the procurement function will also need to adopt a new mindset, skills, and approaches in order to work closely with key supply partners and deliver collaborative value. While supplier relationship management (SRM) has long been in vogue as a term, the actual practices surrounding SRM have been wanting at most companies. The occasional supplier summit or survey represent just a fraction of the effort required to truly develop and maintain the extended enterprise or supplier ecosystem.

Innovate or Be Outsourced

While key partner management is still an emerging practice, it is based on the established success factors behind strategic sourcing-namely, deep analytics, cross-enterprise teaming and a consistent, repeatable approach. Though failures along the way are almost inevitable, they will offer early adopters a valuable first-hand source of lessons learned. The experience also will allow them to refine their approach and expand partnerships to companies all throughout the value chain. Those supply organizations that do not begin to consider and promote supply partnerships will be those that face the greatest risk of losing their voice in the executive suite and coming to be seen as a transaction-based function ripe for outsourcing.