1.2.11 Customer / Supplier Relationships - How Do You Rate As A Customer?
I am sure that you, like me, have sat in the reception area of a company that you are visiting and noticed a framed certificate on the wall proclaiming it to be “Supplier of the Year”. The bestower of this award is invariably a well-known organisation that adds to the award’s status.
In forty years of sitting in reception areas, I have yet to see a “Customer of the Year” award. Yet despite the axiom that the “customer is always right” we all know that a company’s performance as a supplier is heavily influenced by the actions and behaviour of the customer. The customer from hell is just as much a reality as the supplier from hell.
A number of events have prompted the subject matter of this article.
I have belatedly read “Lean Thinking” by James Womack and Dan Jones, two of the authors of that fascinating book – “The Machine that Changed the World”. “Lean Thinking” with its sub-title “Banish Waste and Create Wealth in your Corporation” looks at the application of “lean production” to all functions of the organisation and to the total supply chain.
The second event is that I attended two presentations given by Dr Richard Wilding, Professor of Supply Chain Risk Management at Cranfield University in the UK. Richard believes that competition between companies will be superseded by competition between supply chains.
Thirdly, the filing by GM for Chapter 11 bankruptcy. My understanding is that GM’s relationships with its suppliers were – are – not in accord with the philosophy of “lean thinking” as promoted by Womak and Jones and as practiced by Toyota , the company that has wrested the crown from GM as the largest car manufacturer in the world.
The absence of “Customer of the Year” awards is due to several factors.
- “The customer is always right” is still strongly held - by customers anyway
- Many customers still adopt an adversarial approach - I win, you lose - to their dealings with suppliers
- Customers are often much larger than their suppliers
- Customers believe it to be their right to be difficult, the attitude being that if you - the supplier - are not prepared to play by our rules, we will find someone who will.
- The supplier needs the customer more than the customer needs the supplier. Thus the supplier is in “selling” mode and the customer in “bargaining” mode. Remember that negotiation only takes place when the need to buy equals the need to sell.
One might well ask whether the old traditional adversarial approach, with its lack of trust, benefits the customer. All the evidence points to the contrary. For example, a study by Dyer and Wujin Chu in 2000 revealed that “untrusting buyers pay more than 6 times the administration cost to source a component”.
Here is a checklist of desirable customer attributes. They have been divided into two groups. The first group represents the basic expectations of any supplier whereas the second would only be applicable if customer and supplier believed it to be to their mutual advantage to work towards a real partnership.
Cooperation
- The customer to act honestly and ethically with its supplier
- The customer to provide the supplier with adequate notice of its requirements
- The customer to give the supplier advanced notice of any significant change in order volume, specification or product selection
- The customer to provide the supplier with complete order information concerning specification, volume, delivery date required, delivery point etc.
- The customer to minimise last minute changes to orders
- The customer to pay on time
Collaboration
- The customer and the supplier commit to a long term relationship with each other
- Both customer and supplier are prepared to exchange some loss of autonomy for the expected overall gains
- The customer and the supplier commit to frequent open dialogue and information sharing
- The customer and the supplier commit to the development of C3 behaviour – cooperation leading to coordination leading to collaboration
- Both customer and supplier agree to act flexibly to optimise the value of the relationship to both parties
Note that in the traditional arms length relationship, the customer’s behaviour is independent of the supplier whereas in a collaborative relationship both parties have an equal responsibility to make it work. Experience would suggest that customers find it harder to make the same changes to their behaviour and attitudes than suppliers.
Of course, truly collaborative relationships are frequently not required. As Dr Richard Wilding put it, you don’t need to get married to everyone. However, I would suggest that cooperative behaviour as represented by the first six points is the minimum “specification” for any customer/supplier relationship.
Once the parties have mutually agreed that they both seek a collaborative relationship, the first step is to assess the current one and that’s where SCCI’s PartnerLink program comes in. The PartnerLink Barometer is a self-assessment of the current relationship as viewed by knowledgeable staff among both customer and supplier.
The analysis of the feedback identifies the strengths and weaknesses of the relationship and highlights areas where the supplier’s staff and the customer’s staff have contrasting perspectives. Based on these insights, the parties can develop a joint plan to take the relationship to a higher level. The complete PartnerLink program follows the bpi Best Practice Model of Assessing, Planning, Implementing, Monitoring and Improving.
To this point, this article has focused on external customers and suppliers but the same issues exist in internal customer/supplier relationships. The aggregated data from all Towards Ten Thousand assessments reveals that collaboration between internal customers and suppliers leaves a lot to be desired.
It’s a curious paradox that we will do everything we can to satisfy a customer but are mostly reluctant to progress beyond an arm’s length relationship with our suppliers. But if the name of the game is to maximise customer value, it is becoming rapidly apparent that our key suppliers have a critical role to play.