Beyond intent: moving supplier relationships out of the shadows

by Jon Hansen

In a profession that traditionally measures success in terms of lowest price, supplier relationship building is one procurement skill for which success is often obscured.

Starting back in the old days – and we are talking about a period spanning 30 plus years, buyers would create a pocket of “trusted” suppliers with whom they could do business regularly. Each buyer jealously guarded these relationships as their own for many reasons, much like a company guards its trade secrets.

At the top of the list of reasons was job security. After all, a buyer could deliver value because they had the foresight to build a strong rapport with a group of suppliers, why share it with anyone else?

Another advantage was having confidence in what each supplier in your Rolodex could do. Maybe you could get it cheaper elsewhere, but would the product or service be delivered on time and be of comparable value? Let’s face it; savings aren’t savings if you have to deal with delivery problems or product quality issues.    

In short, a personal and private supplier network meant stability and certainty, but was it in the best interests of the organization as a whole? No, it was not.

Wrestling control

The prevalence of these private supplier networks led to several significant problems from an organizational standpoint.

What would happen if an employee decided to leave and take his suppliers with him to a competitor?

What if a buyer got too close to a supplier? Would the interests of that relationship ultimately take precedence over the best interests of the organization?

Even if there wasn’t a potential conflict of interest, would familiarity lead to complacency and stagnation of the supply base, ultimately resulting in cost creep? This was a reasonable concern because the ongoing vibrancy of any supply network depends on challenging its performance in all key areas such as price, quality, and innovation. 

In order to establish centralized control over their supply networks, organizations looked to automation, otherwise known as e-procurement.

Pushing back

Automating procurement has always seemed like a good idea, starting with the very first spreadsheet. Spreadsheets were able to help buyers streamline their processes and better manage their private networks without having to surrender control of them.

Automating procurement might have stopped there, and, for many, it has. Even in the digital world of AI and RPA, the continuous and ubiquitous presence of spreadsheets is undeniable.

However, organizations want (and need) more in the way of oversight. A centrally automated procurement practice promises such control that companies have pushed forward to achieve this objective.

This approach has sometimes resulted in elongated, expensive, overarching ERP initiatives that failed to deliver the expected results. These challenges have not been helped by the fact that many procurement professionals started managing their supplier relationships in the shadows. Supplier relationships became the purchasing world’s version of a black market.

Emerging from the shadows

The advent of digital technology, coupled with a comfort level developed while buying from Amazon at home, has created an opportunity for a second bite at the procurement automation apple.

There has never been a better or more advantageous time to pursue a digital procurement strategy than today. And yet, according to a December 2019 Deloitte survey of global CPOs, history seems to be repeating itself. Their level of disappointment with digital initiatives – especially with supplier management – lead us to wonder if we aren’t just starting the cycle over.

This survey’s revelation around digital dissatisfaction is a major problem. It begs the question: is it time to finally build supplier relationships through active buyer engagement versus enforced compliance?

In other words, is it time to move supplier relationships from the shadows?