COMING TOGETHER: HOW TO BUILD HIGHLY

COLLABORATIVE SUPPLIER RELATIONSHIPS

By Marisa Brown, Senior Principal Research Lead, APQC

As supply chains become more complex and interconnected, procurement professionals will
need to rethink the ways they build and manage supplier relationships. Organizations are
increasingly dependent on suppliers to help reduce inefficiencies and excess cost, drive
innovation, mitigate risk, and maintain competitive advantage. With the advance of blockchain,
e-procurement, and automated transactions, the need for trust and transparency between
buyers and suppliers is greater than ever.

Even the most market-dominant buyers would be unwise to bully, browbeat, and micromanage
suppliers in this environment. And yet, many organizations continue to apply these short-
sighted approaches to supplier relationship management (SRM). SRM is the discipline of
strategically managing all interactions with third-party suppliers to maximize value. The
application of formal SRM is gaining momentum—but unfortunately, most organizations are
stuck on the approaches and objectives of the past.

An APQC poll found that among organizations with SRM approaches in place, 80 percent rely on
SRM to reduce risk and 72 percent rely on SRM to monitor contract compliance and service
levels. These are dangerously outdated focus areas for organizations moving into 2020. Shifting
risk onto suppliers and micromanaging contract terms is counterproductive and prevents SRM
from delivering maximum bottom-line impact.

Leading-edge organizations apply SRM to drive innovation and competitive advantage, and the
key to their success is building collaborative relationships with strategic suppliers. In SRM,
collaboration does not mean compromise or the absence of conflict. It’s not a mindset or a
slogan, and it’s certainly not a one-size-fits-all approach to be used with every supplier. Instead,
collaboration is a relationship model—built on guiding principles and reinforced through key
behaviors—that allows buyer and supplier to realize mutually beneficial outcomes. In short, it’s
a win-win.

START AT THE BEGINNING

It’s little wonder that traditional SRM often yields frustration and disappointment for both
parties: It applies only in the final phase of procurement, after expectations and contract terms
have been set. To build collaborative relationships with suppliers, you need to start at the
beginning and focus on the bigger picture: the potential for an enduring and mutually beneficial
partnership.

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 First, you need to identify candidates to collaborate with. Building collaborative relationships
takes time and effort, so you cannot invest in collaboration with all suppliers. Buyers can
maintain transactional relationships with suppliers that provide low-cost, standardized goods in
saturated markets. However, collaborative partnership is required when working with suppliers
that are essential to the achievement of organizational objectives. Scrutinize these strategic
suppliers not only in terms of price and quality, but also trustworthiness, transparency, and
compatibility.

ESTABLISH GUIDING PRINCIPLES

Almost every buyer/supplier relationship begins with two distinct visions of desired outcomes.
To build a collaborative relationship, buyer and supplier must align on a shared vision and
establish guiding principles that will enable the vision. The principles will guide partners not only
throughout the negotiation process, but throughout the term of the relationship. A clearly-
defined and mutually-agreed-upon set of guiding principles is necessary to prevent opportunism
and competitive tit-for-tat moves.

Guiding principles can and should be unique to each relationship, but those defined by supply
chain management researcher Kate Vitasek as part of the Vested model are an excellent starting
point. Vitasek identified six guiding principles that help partners build and maintain trust:

1. Reciprocity—parties will make fair and balanced exchanges in the acceptance of risk and
investment of time and money.
2. Autonomy—parties will work as equals and abstain from self-interested power plays.
3. Honesty—parties will be transparent about their capabilities, intentions, and experiences.
4. Loyalty—parties will be loyal to the relationship and its objectives.
5. Equity—parties’ risk and reward may not be equal but will be equitable and fair.
6. Integrity—parties will commit to consistency and trustworthiness in their decisions and
actions.

The parties can negotiate as partners to determine the scope of work, pricing, and—
importantly—measures. This stands in stark contrast to the one-size-fits-all performance
frameworks many organizations currently force on their suppliers. Because the supplier is the
expert on the product or service being provided, its insight is key to identify the most
meaningful measures.

PRACTICE COLLABORATI VE BEHAVIORS

Throughout the partnership, both parties should reinforce their commitment to collaboration
through their actions. Daniel Coyle, author of The Culture Code: The Secrets of Highly Successful
Groups, identified three key behaviors that promote collaboration and propel groups toward
greater productivity. These behaviors can be used to build cohesion and collaboration not only
within the organization, but also with external partners.

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 The first key behavior is “build safety.” Establish a safe environment that allows individuals to
feel comfortable admitting mistakes, sharing ideas, and asking questions. According to Coyle,
safety is like a light switch: If we feel safe, we connect; if we don’t feel safe, we don’t connect.

The second key behavior is “share vulnerability.” Demonstrate behaviors that show risk is
shared among both parties. This begins with one party (typically, the leader, or in this case, the
buyer) openly sharing their own challenges and limitations, which encourages the other party to
do the same. This promotes transparency and the idea that “we’re in this together.”

The third key behavior is “establish purpose.” Collaboration is never an end in itself; both
parties need a clear, well-established purpose to drive collaborative efforts. Coyle recommends
explicitly defining and continually promoting the purpose through mantras. For example, turn
guiding principles (e.g., “Reciprocity”) into short, easy-to-remember mantras (e.g., “We’ll treat
each other fair and square”). Mantras may seem corny, but they help people know what to do
when problems and issues arise.

THE TAKEAWAY: COLLABORATION DELIVERS BOTTOM-LINE BENEFITS

For procurement professionals to succeed in today’s complex and competitive landscape,
collaboration is not a nice-to-have—it’s a requirement. Research from IBM finds that
organizations with collaborative supplier relationships achieve twice the revenue growth and
five times the gross profit growth of their peers. Start building collaborative relationships now or
prepare to fall behind.

For more information, see APQC’s Reinventing Supplier Relationship Management white paper
and research on next-generation SRM conducted in collaboration with Kate Vitasek, Bonnie
Keith, and Emmanuel Cambresy.

ABOUT APQC
APQC helps organizations work smarter, faster, and with greater confidence. It is the world’s
foremost authority in benchmarking, best practices, process and performance improvement,
and knowledge management. APQC’s unique structure as a member-based nonprofit makes it a
differentiator in the marketplace. APQC partners with more than 500 member organizations
worldwide in all industries. With more than 40 years of experience, APQC remains the world’s
leader in transforming organizations. Visit us at www.apqc.org, and learn how you can make
best practices your practices.

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