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Treating the Supplier as a Strategic Business Asset

Most organisations understand that there is significant risk to be managed and value to be unlocked by improving and managing supplier relationships.  Nevertheless, there continues to be an underinvestment in relationship management whether that be senior business sponsor, skilled teams with the capacity to drive productive partnerships or enabling technologies and process to facilitate better ways of working.

This article discusses why it is a critical time to make investments in improving supplier relationships and create a step change improvement in risk and value outcomes for your business.

Supplier Relationship Management (SRM) has been a topic that has ebbed and flowed in interest over the past few decades. Leading practices from the likes of Toyota in the 80’s and 90’s showed the significant potential of strong supplier relationships. Cost pressures and other business priorities, however, have not seen this translate as a sustained and prioritised business practice for many companies.

Two current and pressing factors should give all organisations cause to rethink their approach to all aspects of their supply chain and notably the role of the relationships with critical supply partners:

1.  Security of Supply as a Key Risk:

For decades, excluding a handful of instances, clients have not had to worry about finding supply, but only how to negotiate supply on the best commercial terms. 

Recent global events, however, have brought into stark clarity the critical importance and brittleness of supply chains and the necessity for strong supplier relationships and 2-way information sharing in real time to predict, rather than just react to significant disruptions of operations and client revenues.

Finding out critical parts won’t arrive only at the point of consumption or frantically attempting to expedite can be crippling to a business. Therefore, the level of integration in terms of process, data, and systems between supplier (Tier 1 and beyond) and customers’ needs to improve many-fold.  While this will yield significant benefits, it will come at a material time and investment cost for all stakeholders within the supply chain. In essence, for investment to be sustained by suppliers they must see themselves as important partner with a long-term relationship not a short term transaction or commodity. 

2.  Broadening Supply Chain Priorities Linked to Key Business Objectives.  

As noted in last year’s Deloitte Global CPO Survey , the average number of priorities that supply teams manage, and the importance of each is increasing. Solving for these priorities alone is impossible and requires a different way of working with key members across the supply chain.

To realise each of these broader priority’s, businesses are needing to ask more from their suppliers. 

  • Solving for the next wave of cost improvements will likely involve challenging specification and driving greater standardisation to reduce wasteful complexity.
  • Improving end user experience will require a significant master data cleanse (oftentimes neglected for decades) in addition to developing intuitive and appealing supplier managed e-catalogues that are maintained over time.
  • Identifying and reducing risks likes Modern Slavery require illumination and transparency to the nth tier of the supply chain, leveraging collaboration between client and supplier to work through sustainable solutions proactively.
  • Creating more opportunities for local and Indigenous suppliers will be far more effective if done with a Tier 1 supplier (and open up their customer base) rather than clients going direct and in competition.
  • Finally, driving environmental benefits such as decarbonisation (including reporting on Scope 3 emissions) will require significant collaboration to create processes and solutions that are productive and commercially viable. 

In each of these areas, clients will need to work more closely with and ask more from their suppliers in terms of time and investment.  In return the client must be willing to show an equal level of investment and commitment.

Ensuring these priorities are met is simply impossible through short-term ‘transactional’ style relationships. Rather, it requires a long-term collaboration and investment through a robust supplier relationship management programme sponsored at the highest levels of the organisation.

We encourage clients to think of suppliers less as a transactional third party and more as a critical extension of their larger organisation and talent pool.  

Companies prioritise and spend millions to optimise their client and employee experience, but few invest to any material degree in the supplier experience.  We strongly encourage clients to re-think the level of executive support, talent capability/capacity and the investment in technology that is afforded to manage the supplier relationship and experience.

We challenge clients to re-assess and often invert the amount of time spent in the sourcing phase towards greater time for managing effective and long-term partnerships post contract award. 

The war for top talent is just as applicable when it comes to the supply base.  If clients want the best from their supplier, they need to be considered a customer of choice.  Those who can create deep and sustaining relationships with their critical supplier will thrive and those who refuse to change will be left behind.

Clients should perform a ‘health check’ of their current relationship practices against leading practices to understand the risk and value that is being left on the table.

Deloitte’s Supplier Relationship Transformation approach takes clients through a structured four step approach to reset and redesign the required operating model in a way which creates the type of improved supplier relationships required to win in the modern world.

Deloitte’s Global Supply Chain and Procurement practice brings together experts in enterprise collaboration methodology and technologies with experience from both client and supplier side.

To have further conversations about transforming your supplier relationships please reach out to our team.

Chris Riley

Principal, Perth

John O’Connor

Partner, Sydney