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Supplier Relationship Management is About PEOPLE (Sorry it's not about Technology)

We had some great insights from two speakers on our final day of the SCRC Meeting.  Our first speaker was Lowell Hoffman, who spoke about some of the lessons learned he’s experienced working for 25 years in procurement as a CPO at National Can, Kraft, and Colgate-Palmolive, and 18 years of professional consulting.  Lowell emphasized that “partnership is an outdated word – because we manage supplier RELATIONSHIPS – we don’t manage SUPPLIERS!”  And the word “Relationships” means people are involved – people in your company and people in the supplier’s.

Lowell then noted the historical perspective on purchasing when we began with a transaction price focus, and people were referred to as “purchasing agents”.  This moved in the 1980s to supplier partnerships, and later in the 1990s into strategic sourcing, and alliance relationships, including the segmentation of suppliers into portfolios using the Kraljic model.  And in 2000s companies delved into e-procurement, and started moving away from people altogether.  (As Lowell noted, one supplier complained to him that “The worst thing that happened to me was winning the e-auction – because I pushed the button and won a contract that I couldn’t fulfill!”)  In the 2010s companies began to globalize, and as operations were outsourced into Low Cost Countries like India and China, people then began to worry about supply chain risks.  But it seems as if the tide has turned.  We are hearing more and more about managing relationships through people, development, and collaborative cultures.  And the future now is about people – and that is an area we have to think about.

Lowell emphasized how important it was to really get to know the people in your suppliers.  He talked about spending more time at suppliers’ facilities, and asking the right questions that led to the right discussions.  In this respect, it is critical to really listen.  He challenged people to “Ask a provocative question and then listen – “Who is your best customer – Tell me about this relationship and what makes it so strong?”  Compared to these five competitors – how do you rank us – and that is a relative ranking that compares us to the market.  What is different than our relationship and how could we re-structure it to make it like that?  We can find out what makes it effective for the supplier – and then spend time trying to work on how we can make them favor us as a competitor.”

He also urges people to talk to multiple people at the facility.  In one case, he specifically went to visit a supplier when the sales account manager wasn’t there, and learned in discussions that their competitors’ orders were being put into the schedule ahead of theirs!  In such cases, it is perfectly okay to request a new person to work with, if you feel you aren’t getting fair treatment.  I also really liked his point about taking a plant tour.  “During the plant tour, ask them – “What changed in the past 3 years?   If I came back in 3 years – what will be different?   This tells you about capital budget and will find out about direction of change.  Walk the process and look at job tickets and walk your order through the proceess….Go to the planners and meet with them.  You will see names of competitors, run lengths, cycle times, etc. and find out how your orders are being managed.

Lowell provided several great examples of how finding ways to “market to your supplier” provided a competitive advantage on innovation, cost, and global market share for the companies he worked at.  In each of these examples, he talked about really getting to know the personalities involved, and understand what makes them tick.  “Understand how your sales account manager is rewarded – is it profit margin, sales targets, or what?  Then find ways to make them successful!”

Lowell’s discussion was followed by a great economic forecast lecture from Jason Schenker.  He noted a few items of key interest:

“We will be seeing some small growth in the US – and even modest growth in Europe, and growth in China will stay around 7%.  China is paying workers 10-20% more every single year – and Chinese currency will also continue to appreciate even as it is pegged.

GDP growth will be slow this year and next, and 2016 will get hot, and probably will be back in recession in 2017 or 2018.

As usual, his forecasts were rife with humor, insight, and wry observations on the state of the economy.  One of my favorite lines:  “Everyone tells me that my forecasts leave them feeling depressed….I tell them you don’t have to be depressed, you just have to lower your expectations!”