For buyers, managing a strategic supplier can sometimes be hard work. How can negotiations with an essential supplier be handled effectively? And how is it possible to create value and innovate with a partner while remaining competitive?
Context and challenges
For the last 20 years, the number of cost-cutting programs in companies has been increasing. Buyers have institutionalized their negotiation practices, implemented procurement strategies for each category, and developed their sourcing in low-cost countries. These initiatives have led to the rationalization of supplier panels. It is no longer rare for ten or so suppliers to account for 20% of a company's procurement expenditure.
Since the mid-2000s, in an uncertain and very volatile economic climate, cost-cutting has undoubtedly been the main priority, but it is no longer the only one! To ensure continued growth and remain ahead of the game, senior managers are now making a new demand on procurement managers: cooperate with certain suppliers to support growth and create value.
Procurement managers are no longer held accountable only for bottom line targets, through the optimization of OPEX and investments, but also for so-called top-line issues.
Different business sectors are introducing procurement initiatives for value creation:
- Supporting development by increasing procurement flexibility in order to be more reactive to market needs: reducing cycles to better meet customer demands (e.g. short cycles, collaborative planning in the Textile industry)
- Innovating by drawing on supplier knowledge: Convenience Goods industry
- Co-developing new products with strategic suppliers: Automotive industry
- Supporting growth by securing supplier risks, in particular supply: Aeronautics industry
- Sharing commercial and marketing data to develop growth in new countries
For procurement managers, this challenge can prove complicated for three reasons:
- A large cultural gap: this constitutes a profound change for teams which have long been focused on short-term savings targets and relationships that are largely based on the creation and maintenance of a power balance with suppliers. Teams are now being asked to think in the medium to long term and to promote transparency in the partnership
- Who should they cooperate with? In contrast to cost-cutting issues, which facilitate the identification of targets to address (in general the largest categories or suppliers), when implementing a cooperation project with suppliers for value creation, it is necessary to identify which suppliers are most likely to contribute value. And, in this instance, the largest suppliers are not necessarily the best
- How should this cooperation be carried out? How can suppliers be encouraged to invest? What is the Business Case?
How Can Argon Consulting help you?
Argon Consulting assists its clients in defining or updating their cooperation projects with strategic suppliers. In particular, we work on:
- Identifying the strategic cooperation challenges and elaborating the Business Case
- Identifying partners and developing the supplier relations strategy
- Supporting cooperation