Many key B2B relationships fail to meet expectations and if they were to end, each party within the relationship could be significantly impacted. In this article we examine what is causing key B2B relationships to fail and lose millions, and the missing strategies, expertise and processes that could save your key B2B relationships.
Firstly – let’s describe you: Very professional; extremely skillful in your area of expertise; impressive track record; an appetite for learning better ways to improve; you love what you do; very proud of the company you work for and want to contribute to its success; you believe continuous improvement is critical; and you know your company’s relationships with its top 30% of customers and suppliers are integral to the company’s survival, continuity, success and growth. Not just any success and growth, but the specific strategic objectives defined in your Corporate Strategy by Senior Executives, Shareholders and Key Stakeholders. These are all the key qualities of the type of people you want involved in managing your key supply chain relationships.
1. Failure To Identify Who Should Be Negotiating & Managing Your Key B2B Relationships
What is the combined value of your company’s relationships with its top 30% of customers and suppliers? In the billions? In the millions? Key B2B relationships need to be protected.
With your company’s survival, continuity, success and growth being critically dependent on your company’s relationships with its top 30% of customers and suppliers, which are significantly high in value, who exactly does the company have negotiating, structuring and managing each key relationship? 1 person? Two people? Six people? What are their roles and which functions do they represent? Are these people like you, how I have described above? In who’s hands has your company placed the fate of its key supply chain relationships, the fate of the company, the fate of billions/millions of dollars’ worth of relationships? Should you be nervous?
You may think: “It’s fine, we are experts at negotiating and managing key relationships, and have a strong track record with repeat contracts with key customers and key suppliers”. That’s great, until one day you find out that your key customers and key suppliers completed the SCMi High Performance Business Relationships executive education program by Supply Chain Coach® and now they want a whole lot more from their key supply chain relationships.
2. Failure To Acknowledge That Key Customers & Suppliers Want More From Their B2B Relationships
In fact, your key customers and key suppliers have now added an additional critical selection criterion to their supplier and customer evaluation: Potential for Value Co-Creation; and have made a few other key decisions including:
- Measure the value of all key supply chain relationships including the value derived from joint initiatives.
- Stop purchasing from key suppliers who are unwilling to adequately resource key relationships; since achieving joint initiatives and expected goals need to be resourced.
- Only collaborate (or partner) with key suppliers who are willing and capable of value co-creation.
- Segment suppliers by potential for value co-creation in addition to volume of spend.
- Increase spend with high performing key suppliers and launch more joint initiatives.
Refer to the case study example on slide 27 of the presentation Co-create Substantial Value through Next Level Customer & Supplier Relationships. On that slide, Supplier B (a $40B company) only provided 1 person to manage the $18.5M contract with their customer Bob Evans Restaurant; this person was also required to manage the joint initiatives they agreed to, but were unsuccessful due to under-resourcing the relationship. After working with Supplier B for 5 years, Bob Evans Restaurant ceased ALL purchasing with Supplier B, after having the value of their key relationships measured. This completely changed Bob Evans Restaurant’s perception of value and they enforced the 5 steps identified above.
3. Inability To Turn Around Bad Marriages With Key Customers & Suppliers
You may think: “Forget value co-creation, we can’t even manage the basics in our key relationships let alone adding further complexity”. Many key supply chain relationships are bad marriages that end in divorce – however, it doesn’t have to be that way. In fact, the The Partnership Model and The Collaboration Framework have turned around relationships between key customers and key suppliers (who completely stopped doing business together, but still significantly needed each other) into productive harmonious relationships that are now more valuable and managed extremely well. Read the Harvard Business Review article “We’re in this together” about Wendy’s International and Tyson Foods complete turn around in their relationship.
What is the impact to your company – and how many lives will be impacted (on the customer side and on the supplier side) – if any of your key supply chain relationships were to end?
Source: Douglas M. Lambert, A. Michael Knemeyer and John T. Gardner, Building High Performance Business Relationships, Ponte Vedra Beach, FL: Supply Chain Management Institute, 2010, p. 8 and p. 79
4. Failure To Maximise Your Negotiation Position & Failure To Help Your Key Partner To Succeed
There are two primary reasons for disappointment in key customer-supplier relationships:
- Unrealistic expectations going into the relationship
- Expectations reasonable but never articulated and agreed – no plan for achieving them – failure was the result.
How you view your key customer-supplier relationship – either as a partnership or an important collaboration – impacts what you negotiate and how you manage the relationship. There’s a good chance that you may not be aware of ‘what else is on the table for negotiation’, and how far both parties are willing to expand and explore their relationship.
You may have policies and other constraints that limit what can be negotiated and what can be gained from key relationships (especially Government); but are you maximising what you are allowed to negotiate? You may also want to update your procurement policy and procedures after completing the SCMi High Performance Business Relationships executive education program by Supply Chain Coach®.
When both parties come together for a SCMi Supply Chain Partnership Workshop (1.5 day) or SCMi Supply Chain Collaboration Workshop (1 day), each team spends four hours separately examining the Drivers and compelling reasons to partner or collaborate. Each party develops a set of initiatives and goals per Driver that they would like to gain from the relationship.
Four Key Drivers:
- Asset / Cost Efficiencies (opportunity to negotiate better utilisation of assets and/or cost reductions that might occur in areas such as transportation costs, handling costs, packaging costs, information costs, product costs, or managerial efficiencies)
- Customer Service Improvement (opportunity to negotiate improvements that lead to increased sales when customers experience benefits such as reduced inventory, improved availability – which leads to sales increases – and more timely and accurate information)
- Marketing Advantages (opportunity to negotiate enhancements to the company’s marketing mix through joint programs; entry into new markets; better access to technology and innovation)
- Profit Stability / Profit Growth (opportunity to negotiate the potential for stabilising profit; strengthening a relationship often leads to long-term volume commitments, reduced variability in sales, joint use of assets, and other improvements that reduce variability of profits).
During the SCMi Supply Chain Partnership Workshop or SCMi Supply Chain Collaboration Workshop, expectations are aligned by each team presenting their proposed initiatives and goals to the other party; then joint goals are agreed. For partnerships, the probability of joint goals being achieved is assessed; in addition to assessing the probability that the companies will provide a supportive environment to achieve joint goals. Partnership scoring determines the propensity to partner and whether the partnership should be a Type I, II or III. Then the managerial controls for the Type I, II or III partnership are defined using a template. If not a partnership but an important collaboration, 18-24 month performance goals are established. The workshops conclude with the development of a Strategy and Action Plan to implement the relationship and achieve each firm’s drivers and goals.
Also refer Webinar Recording by Sharyn Grant and Dr Douglas Lambert: How to structure supply chain relationships that co-create value
5. Failure To Adequately Resource Partnership & Collaboration Negotiations & Relationships With Cross-Functional Teams
What you plan to negotiate has a direct impact on who should be sitting at the negotiation table. Research of commercial relationships has proven that more value is created in cross-functional relationships. Up to 15 key people per firm attend the SCMi Supply Chain Partnership Workshop or SCMi Supply Chain Collaboration Workshop to represent key business functions and assist in developing initiatives and goals for the Key Drivers. In addition to company executives, the business functions represented typically include Research & Development, Logistics, Sales, Operations, Marketing, Procurement, Finance, Manufacturing and IT.
Negotiating value co-creation initiatives has somewhat replaced the need to pressure key suppliers to reduce prices, and expands the relationship beyond the primary reason they are doing business together. For example, working together to: find ways to remove costs from the supply chain; find ways to increase each other’s revenue; find ways to expose each other’s services and products to more market place opportunities to increase market share. Here are some examples of drivers and initiatives your cross-functional teams could be developing and negotiating:
Examples of Asset / Cost Efficiency drivers:
- Offer the supplier’s services to the customer’s suppliers, to create additional revenue for the supplier and cost savings for the customer (set measurable goal).
- Initiatives regarding fuel surcharge, backhauling, freight forwarding, full truckload purchases (set measurable goals).
- Improve balancing of orders to increase distribution efficiency (set measurable goal).
Examples of Customer Service Improvement drivers:
- Improve the supplier’s service levels across all of the customer’s divisions (not just the one currently being negotiated) (set measurable goal).
- Reduce lead times to reduce safety stock (set measurable goal).
- Agree on and deliver to a Perfect Order definition (set measurable goal).
Examples of Marketing Advantages drivers:
- Sell the customers’ goods through the supplier’s stores (set measurable goal).
- Sell the customers’ obsolete inventory to the supplier’s customers (set measurable goal).
- Joint presentations to each other’s customers (set measurable goal).
Examples of Profit Stability / Growth drivers:
- Initiatives to stabilise commodity pricing (set measurable goal).
- Develop pricing schemes for different regions (set measurable goal).
- Supplier to expand operations to service the customer’s operations across additional states (set measurable goal).
Refer to case study examples on slides 28 – 36 of the presentation Co-create Substantial Value through Next Level Customer & Supplier Relationships where 38 of the 40 initiatives were agreed as joint goals, and the value co-created.
The business function representatives help to structure, manage and review the entire relationship, cross-function and cross-firm, with the assistance of a Relationship Coordinator during implementation. Post-workshop the parties develop and implement their Product & Services Agreement.
You will need to realistically examine which functions and how many resources per party is required to develop initiatives, negotiate, structure, manage and review the entire relationship. It is equally important not to over resource key relationships, as it is to not under resource key relationships.
6. Failure To Educate Those Responsible for Key B2B Relationships
We are hosting a visit to Australia by Dr Douglas Lambert, Director of The Supply Chain Management Institute (SCMi), Florida and Dr Matias Enz to facilitate public executive education programs and in-house workshops with our team. Refer details here.
Executive Education Programs:
- SCMi Supply Chain Management Framework 5 – 7 June 2017, Sydney
- SCMi High Performance Business Relationships 12 June 2017 Brisbane; 14 June 2017, Melbourne
7. Failure To Seek Neutral External Expert Assistance To Assess & Structure Key B2B Relationships
At Supply Chain Manager® we are providing opportunities for private in-house workshops for firms wishing to take advantage of this special visit, Dr Lambert and Dr Enz (supported by our team), to assist the firms to assess and structure a high performance business relationship with their key customer or supplier during the workshop:
- SCMi Supply Chain Partnership Workshop, 1.5 days (8 & 9 June 2017)
- SCMi Supply Chain Collaboration Workshop, 1 day (13 June 2017)
More information: http://www.supplychainmanager.com.au/services/workshop-facilitation/
The development of The Partnership Model & The Collaboration Framework relationship tools was led by Dr Douglas Lambert (Director of The Supply Chain Management Institute, Florida) with a team of researchers at Ohio State University’s Global Supply Chain Forum, and involved executives from the following multi-billion dollar corporations over the past 24 years who contributed to the methodologies and the content of the SCMi books:
3M; Bob Evans Farms; Cargill; Colgate-Palmolive Company; Defense Logistics Agency; Hewlett-Packard Company; Imation; International Paper; Limited Brands; Lucent Technologies (AT&T Network Systems); Masterfoods USA; McDonald’s Corporation; Shell Global Solutions International B.V.; Sysco Corporation; TaylorMade-adidas Golf Company; The Coca-Cola Company; The Goodyear Tire & Rubber Company; Tyson Foods; Wendy’s International ; Whirlpool Corporation.
Companies that have successful key B2B Relationships:
- Acknowledge that their key customers and suppliers want more from their B2B relationships
- Adequately resource partnerships and collaborations during negotiations and relationship management using cross-functional teams
- Know how to maximise their negotiation position in terms of Asset / Cost Efficiencies, Customer Service Improvement, Marketing Advantages, Profit Stability / Profit Growth
- Proactively help their company and their key supply chain partners to succeed through joint initiatives, including value co-creation opportunities
- Have the ability to turn around bad marriages with key customers and suppliers where justified to do so, but better still, knows how to prevent them
- Ensure that personnel responsible for key B2B relationships are educated in the process and have a common understanding of requirements
- Seek assistance to assess and structure key B2B relationships using a neutral external facilitator who is an expert at assessing, structuring and managing key supply chain relationships.
Questions for you to contemplate privately:
1. What is the combined value of your key customer and supplier relationships?
2. Are these relationships adequately resourced and managed?
3. Are these relationships meeting your expectations and achieving their goals?