The entire process of building closer relationships between customers and suppliers has become known as partnership sourcing. Its origins lie in large multinationals buying supplies from smaller companies. Companies like Glaxo, Kodak, IBM, Nissan and British Airways, for example, are all champions of the approach. Computer Company ICL has nearly 200 suppliers signed to its vendor accreditation scheme. The program arose from analysis which showed that of 6,500 suppliers, ICL did 70 per cent of its business with a mere 200. Suppliers in the accreditation program have to achieve high quality standards and are subject to performance evaluations by ICL. They are also expected to link up directly with ICL's electronic trading system and, increasingly, to deliver components directly to the production line. ICL's relationships are such that it shares research and development and formulates joint marketing strategies with its leading software supplier.
As in so many instances, Japan is a rich source of best practice. Toyota, for example, manufactures only a third of its needs in-house. It calls on 300 contractors who are at the top level of its tiered supplier structure and who work closely with Toyota. They are also members of its product development teams. The top tier of suppliers then contract out much of the work to smaller suppliers. All the way down the supplier chain, companies are linked by their recognition that working together is a situation which benefits all sides.
A 1993 survey of 280 of the leading European companies by consultants Booz, Allen & Hamilton found that 60 per cent of those interviewed insist on a regular presence at their suppliers, compared with 40 per cent five years previously. The consultants anticipate the figure will soon rise to 75 per cent. In addition to this, companies are reducing their supplier base at more than 3 per cent a year, a figure which Booz anticipates will double. BA, for example, had 10,000 significant suppliers in the 1980s - a figure which has now been reduced to 3,500 and is set to fall further. Booz's research suggested that the best performing companies are those moving to lifetime agreements or long-term contracts with suppliers. Interestingly, the best also appear to make the most of fewer resources. In many cases the smaller the purchasing department, the more impressive the performance in terms of material costs, material quality and inventory turnover.
The attractions of partnership sourcing are persuasive:
- adversarial relationships between buyers and suppliers are replaced by ones of mutual support and benefit
- large companies can keep costs down by committing them-selves to buying greater amounts from smaller suppliers
- the customer-supplier relationship can be one of mutual learning with both sides benefiting from an external and new perspective on their business
- product development is more likely to match customer needs if the customer's business is more fully understood by the supplier
- product development is likely to be faster.
'In a partnership it is unlikely that both parties will have equivalent power,' says Roger Pudney of Ashridge Management College, who has carried out extensive research into customer-supplier partnerships across the world. 'But, both parties should be bringing something very distinct to the relationship which the other partner needs. Traditional adversarial type relationships lead companies to exercise their power to gain advantage over their competitors, suppliers and customers; in more collaborative relationships this attitude has to be put to one side.
" Keep it simple
KISS ('Keep it simple stupid') is a useful acronym to bear in mind. Some of the biggest companies in the world have built their success round this idea. They frown on diversification into markets they know nothing about and on tinkering with something which has proved itself successful. Why shower customers with unnecessary choices when all they want is a straightforward product of high quality at a decent price?
As businesses grow there is a strong temptation to provide added extras, to make the product or service more complex and therefore, you think, more appealing. This is often the route to disaster. Change the product and you run the risk of annoying the very people who have made you successful in the first place - customers.
Moving into completely new areas carries huge risks. Some of the biggest corporations in the world have made major errors in moving into businesses they knew next to nothing about. Diesel engine-maker Cummins moved into ski resorts; Letraset bought stamp dealer Stanley Gibbons; Coca-Cola bought Columbia Pictures; Hawker Siddeley bought a distillery. The list of companies which thought they could transfer their expertise into other businesses and failed is a lengthy one. For the small business the risks are even greater - they have everything to lose. If you have set up a successful window cleaning business do not be tempted to move into ladder manufacture.
The answer to many of these potential pitfalls is to keep it simple. This sounds straightforward but the temptation to add extras in an effort to boost sales is strong. Henry Ford is renowned for his ability to keep it simple - Model Ts remained black after all. In fact, Ford was undone by the fact that he kept it simple and the same. It is one thing retaining a straightforward aim and an idea of why you are in business, quite another to become stuck in a rut. The message is keep it simple and change constantly. 'Businessmen go down with their businesses because they like the old way so well they cannot bring themselves to change,' said Ford, neatly summing up his own failings.
McDonald's is a great example of what can be done. It is constantly changing what it offers its customers - there are special promotions, combinations of products and occasional new products - but it doesn't change too much. You know what you will get. You know there will always be a Big Mac, fries, shake and apple pie. McDonald's changes but stays the same. Indeed, it changes to stay the same.
