Don’t manage costs. Manage suppliers
“Don’t manage costs. Manage suppliers” is our motto. Why? Because it makes financial sense.
In this article, I will shortly explain the reasons for this motto and explore why procurement should pay greater attention to the supplier management practice instead of having a narrow focus on price and cost saving.
The future of procurement is supplier management – not cost savings. CFO must realize this fact.
We claim that the future role of procurement will be to manage suppliers – not costs. There are many reasons, but our key argument is that a narrow focus on cost saving will cost you in the long run. Not many CFOs want to acknowledge this, but it is a fact that relationships matter when it comes to business, even for CFOs. Focusing only on reducing prices and pushing suppliers is evidence of a short-term approach and will most likely damage the relationship, and you will not get the value (in terms of help, service, innovation, etc.) from the supplier you could have had and may suddenly need.
We acknowledge that in certain commodity categories, it makes sense to focus only on price, but these categories are minor compared to other non-commodity categories where service, logistics, support, innovation, and other add-on services play an important role in the full value delivered from a supplier to your company.
Look at Google and Unilever
Google is probably one of the best examples in this context. In GoogIe’s procurement team the term ‘savings’ is simply banned from being used. The reason is that Google does not focus on saving an extra X% on price. Instead Google focuses on finding and working with suppliers that can help the company develop the next big product or solution for the market, be it self-driven cars or air-balloons to fly in the sky providing internet to the entire world.
At Unilever, they have a ‘Partner-to-Win’ program, which represents Unilever’s approach to ‘building long-term relationships with selected key strategic supplier partners in order to achieve mutual growth, both for their suppliers and Unilever’. Part of this program is that the entire Unilever top management team spends two full days with the suppliers’ top management teams to give direction and identify new opportunities.
This raises the question: How many days has your entire top management team spent with your suppliers over the last 12 months? Maybe you should be bold enough to ask them.
Supplier management and SRM will also make sense in your company
As procurement leaders, we should learn from these great companies. Google and Unilever do not initiate these projects to be friendly. They do it because it makes financial sense. And supplier management initiatives like an SRM program will also make financial sense in your company.
Be the leader of your suppliers
We believe that as a procurement leader, your role will be to lead your suppliers, using all the cards you have available. This means to show the initiative in relation to suppliers, communicate a direction for your suppliers, measure their performance, and then engage with them to influence and manage them in the direction you want them to go. The procurement leaders that succeed at this practice will not only be extremely successful in their procurement role, but they will also advance into even greater roles.
Working closely with suppliers and managing relationships to build even greater processes and products that help your company gain the competitive advantage over your competition, should be at the top of the agenda for procurement. And as procurement leaders we should be bold, ambitious and smart enough to challenge our CFOs, or maybe even the CEO, on a narrow cost saving focus to mobilize a new perspective on procurement’s role within the company.
So, are you ready to challenge your CFO?