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June 1, 2004 Why Common Sense Purchasing via Relationship Building is the Key to Supply Chain Success by Tom DePaoli Why Common Sense Purchasing via Relationship Building is the Key to Supply Chain Success By Dr. Tom DePaoli   Having a strong purchasing foundation grounded in a common sense is the key to supply chain excellence. Purchasing is the art of building relationships. It is not about negotiations, transactions, industry knowledge, market knowledge, know-how or technology. These are tools or a means to an end.  Purchasing is all about the building of strong relationships and gaining the trust of suppliers, customers, and colleagues.  Nothing else comes close in effectiveness to the building of relationships for successful purchasing. A purchasing professional must be able to build solid relationships. Supplier relationships are the most critical. Why Honest Relationships are Foremost and a Powerful Ally Don’t spend inordinate amounts of money on so called purchasing technical training or software unless a strong foundation of relationships is well underway. You can’t fake relationships. You can’t legislate them. Purchasing professionals need to live and commit to relationships. Integrity in relationships will always carry the day, impress suppliers, scare the competition, and let you sleep well at night.  Educational credentials look good, and certifications are certainly impressive but nothing makes a purchasing professional more effective than developing strong relationships and being true to their word. Spending more time on relationships almost always pays off for all participants.  Once trust or relationships are broken they are nearly impossible to repair, so don’t neglect them or underestimate their criticality. You won’t be able to dig yourself out of any of the deep holes that you dig by dishonest relationships. Smoozing is a lot easier than shoveling. Honesty almost always builds respect. In Relationships Use Some Common Sense Methods The best way to build relationships is to do what you say you are going to do always, follow through on your words with actions, and to hold yourself accountable for your actions. Working together problem solving with the suppliers you are trying to build a relationship with is a powerful way to enhance relationships. Nothing beats sympathy and genuine caring about their struggles and personal fears. People remember when you take the time to personally help them through difficult times or issues. During a crisis if you can help a person solve an urgent problem or issue by going the extra mile you will get their gratitude and trust. Treating others like you want to be treated is the surest way to build relationships. The golden rule works. Use it. Knowledge Builds Respect and Respectful Relationships The very best piece of negotiations advice I have ever received was to know the capabilities of your supplier, their industry, their competitors, their cost drivers, their margins and their capabilities better than they do! Much easier said than done but it is a powerful tool. It requires a lot of homework, digging and flat out hard work. Once a supplier realizes you understand them, it eliminates all the negotiations posturing and game playing. You will be surprised how fast they will now focus on real issues and problem solving once they know you can’t be bamboozled. You obviously can’t do this with every supplier only the most important and most strategic ones. It is a powerful negotiation tactic based on knowledge not histrionics. Level the playing field with your knowledge! Gain the respect of your key suppliers. Roll up your sleeves, dig deep and become an industry expert. Suppliers will be impressed and more open to relationship building. Sizing up Your Suppliers and Preparing the Relationship Suppliers that have had experience with non-traditional purchasing concepts, alliances and partnerships definitely have an advantage when it comes to developing a deep relationship with them. Make sure you take the time to explain your procurement or supply chain strategy to them and to take the time to understand their strategy. They need to know what’s in it for them. Make it clear and measurable. Feeling good about each other doesn’t get to the bottom line. Appearances do count.  You can size up a supplier’s partner quotient a lot by actual site visits and talking to their employees at all levels. Smiling faces are better than growls and disgruntled remarks. Make sure you dig up the standard industry references about industries and do your homework on which suppliers or companies are at the top in the industry. In most industries there are three or four top companies and although there are differences on many routine items or commodities you can’t go very wrong by picking one of the top ones as your supplier. Don’t over procrastinate on these types of items. Top management needs to understand one important precept.  Suppliers can make or break any business or business plan.  According to Dr. Deming defective materials or equipment not human error or the defective process causes over 80% of quality variances.  Suppliers obviously play the key role in achieving high quality.  Suppliers need to be treated as stakeholders not adversaries.  World-class suppliers can become a company’s very best competitive weapons.  They play the quintessence role in reducing time to market. You must focus on these supplier relationships for supply chain excellence. Pick Your Relationships Carefully With a Few Suppliers Don’t generate a plethora of partnerships or alliances with suppliers. True partnerships are deep relationships and they must be tightly controlled and evaluated. It makes no sense to partner with hundreds of suppliers just for the sake of using the partnership term. True partnerships require a lot of energy, relationship effort and time. One of the prime criteria’s to select a supplier as a partner is the fact that they have had previous partner experience. This is a tremendous advantage and should not be discounted at all in your criteria.  Think of partnering as important as a long term marriage and treat it as such. Divorces are bloody so choose carefully the supplier partner. Testing Suppliers Capabilities Always Do A Road Test Never incorporate a new supplier without an actual test run of buying an item from them period and no exceptions.  Have a purchasing professional pretend they are an end user, play dumb and actually order an item form the new supplier. Review the entire transaction process to include acknowledgement and invoice payment. Check on status often. This one road test tip will save you mountains of headaches and resistance to change.  Folks do not really want new suppliers. They will latch on to any mistake to justify their resistance and castigate the new supplier. During trial periods new suppliers are most vulnerable to detractors and attackers. Make sure you meet frequently with them. You need to act almost with SWAT team efficiency when a problem occurs and solve it immediately. Agree to problem solving procedures in advance and deadlines. Solve glitches and explain what happened openly. This is not the time for shoving things under the rug or stonewalling problems. Fix them on the spot whenever possible. Just How Many Strategic Suppliers and How to Select Them Strategic sourcing is a disciplined process organizations implement in order to more efficiently purchase goods and services from suppliers. The goal is to reduce total acquisition cost while improving value. A Strategic sourcing strategy should be initiated immediately. A comprehensive sourcing methodology should be followed religiously to include strategic alliance and strategic relationship building with key suppliers. Key supplier alliances must be established. Supplier rationalization (reduction) must be accomplished first and dramatically. Many consulting firms offer a Strategic Sourcing Management solution that walks online users through each step of a consulting-type procurement sourcing methodology. Sourcing savings are in the 20-40% range for many companies. Cultural fit and chemistry is also important. If the relationship is strictly going to be commercial and not a true partnership it is okay to go with your gut on some supplier selections. Make sure they have the capabilities to grow with you. Gut check time is scary for some folks but it is okay to go with your gut on some suppliers especially non strategic suppliers. Relationships are the key to purchasing and supply chain success and the straightforward use of common sense methods will carry the day. Relationships require deft handling by a purchasing professional. No other skill even comes close to insuring supply chain success.   Dr. Tom Depaoli is the author of Common Sense Purchasing –Hard Knock Lessons Learned from a Purchasing Pro available at www.commonsensepurchasing.com Dr. DePaoli has held practically every position in purchasing from junior buyer to vice president. He has led numerous supply chain reengineering efforts and installed multiple e-procurement software applications. He can be contacted at drtom@commonsensepurchasing.com or at the phone number 404-915-9366.

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