Companies start supplier continuous improvement programs with the best intentions. Unfortunately, external market forces often hamper results. In extreme cases, sudden market downturns can cloud judgement into short-term, one-sided profit maximizing. During tough times, businesses can quickly erase years invested in supplier trust or embolden bonds in new ways.
Sharing cost reductions does not have to be a zero-sum game where savings are a finite pie to be divided up. Driving greater profitability at our companies and stronger more resilient supply bases are not mutually exclusive activities. We need to do both—optimize costs and grow the revenue pie. It is possible to enhance both your company your supplier’s company to maximize the “extended enterprise value.”
Today, suppliers are an important extension of organizations often creating the very innovations that ensure our future. Directly put, we need a robust profitable supply base to make investments in innovative new products and services that will underpin our company’s future offerings. Below are several considerations for building more productive partnerships that enhance mutual enterprise value.
People productivity is key
Over the past decade, global productivity has realized marginal gains despite exponential growth in technology advancements and investments.
For example, U.S. labor productivity increases have been falling dramatically; 2.8% from 1947-1983 to 2.6% from 2000-2007 to 1.3% from 2007-2014. Much of the drop in labor productivity gains can be attributed to significant drops in total factor productivity (TFP), the measure most associated with contribution to efficiency stemming from technology and innovation.
In a more dynamic world, we need to seek approaches to increase our suppliers’ efficiency and hence productivity. Thus, seeking and actively sharing productivity tools with suppliers can enable greater extended enterprise results.
How to accelerate supplier continuous improvement results
1. Share learning resources
Companies need to approach continuous improvement with a continuous learning mindset. It is impossible to know everything. Avoid the pressure of feeling like you need to quickly produce a tool and answer for every challenge. In fact, it is best to take a servant leadership approach by not claiming to know everything about continuous improvement.
We must check our ego at the door and approach the sharing of learning resources as a collegial affair and not as a lecturer-student relationship. Find ways to highlight things you recently learned and work wherever possible to lower formality barriers. A little self-humility never hurts. The more we approach supplier relationships as trusting members of our extended enterprise the less stress and more flow we will realize in our efforts.
2. Broker business relationships
Suppliers are extremely resourceful, smaller organizations by default must be more self-sufficient. However, it is less productive to identify and qualify all the necessary resources needed to realize and maintain a lean enterprise. The chances are that you, regardless of title, wield a certain degree of influence. You need to flex these connections for your suppliers. Seek ways to leverage your relationships to improve your suppliers’ companies.
One approach is developing a short list of supply chain continuous improvement services and software firms that can accelerate your suppliers’ efforts. Large manufacturers in automotive and building products have structured programs that provide access to preferred vetted service and software firms at pre-negotiated rates. Select leaders are taking this concept one step further by co-creating supplier resource programs with invoice credit programs that reduce both their and suppliers’ costs. These programs are also providing expanded training resources and standardized support offerings. This will not only save your suppliers time and money it will likely lower extended enterprise risk.
3. Provide productivity tools
Newer productivity software tools such as automated plan for every part helps suppliers standardize and institutionalize lean continuous improvement best practices. Further, forward thinking organizations are realizing that making software tools available to their supply base has several halo benefits. Notable benefits include fostering a “customer of choice” company image which can lead to preferred commercial terms, innovation access and prioritized cost reduction initiatives.
Toyota has developed and fostered a sustained continuous improvement advantage over decades with their Toyota Production System (TPS) methodology. Similarly, empowering your supply base with access to cost effective productivity software tools can help align suppliers with your success.
Standardizing continuous improvement initiative project management can further increase productivity while aligning work. The project management of initiatives from inventory to delivery to packaging to sourcing optimization is migrating to more collaborative software. Suppliers can more efficiently execute and communicate initiatives statuses via agile project management software freeing up their time to get more done.
Accelerating mutual value creation
Corporate strategy books repeatedly cite the perils of competing on cost alone. Why then do we revert to aggressively squabbling for every penny and nickel with suppliers? It turns out that investing in relationships and continuous improvement initiatives take time. As with all things that take time, few people are willing to make the investment.
During times of rapid change, we can be tempted to revert to paths of least resistance. However, it is difficult times that offer the largest opportunities to buck the alure of short term thinking and double down on partnering with your suppliers to drive long term mutual enterprise value.