Resetting supplier relationships should be top of the board agenda

Supplier relationships and the role of procurement have recently hit the headlines for all the wrong reasons. Although the spotlight has fallen mainly on the retail sector, the debate has spread across all industries and reached all the way to the boardroom.

Perhaps the most high-profile example, Tesco, has announced a number of positive steps towards forging better supplier relationships, including launching the Tesco Supplier Network, an online platform that will enable a fairer and more transparent approach. In Tesco’s case, the commitment to invest in supplier relationships has come directly from the board. Board-level sponsorship is an essential component of ensuring that long term plans to work with key suppliers are not derailed by short term cost-saving targets.  

Beyond reducing the risk of reputation damage, viewing procurement and the management of suppliers as a strategic imperative can deliver benefits for both procurement and the business as a whole:

Making sure the procurement agenda is aligned to the business strategy

Procurement has often been viewed as the poor relation when it comes to business strategy, but there is clear evidence that corporate reputation and customer satisfaction can be directly affected by poor or non-strategic purchasing decisions. For example, an organisation we have worked with took a strategic decision never to charge a customer for speaking to the customer service department, only to discover some months later that one of its outsourced call centre providers was still using premium rate numbers. Clearly no one had told the procurement department about the strategic decision, let alone involved them in formulating the strategy in the first place. Being more joined up can only be good for business.

Being ethical makes commercial sense

Developing strong, sustainable relationships with suppliers is almost certain to benefit all parties. An ongoing positive relationship will ensure smoother delivery of goods and services, as well as more effective risk management. There is empirical evidence that treating suppliers ethically and fairly encourages them to view organisations as allies and can lead to the organisation becoming the customer of choice. Would you prefer that the most innovative supplier in each category worked with you or with your competitor?

Positive relationships = strong reputations

The increasing demand for transparency, along with the speed at which bad news travels, has a profound influence on risk and reputation management. A business’ external reputation with customers and the City has a huge bearing on its commercial success. A positive reputation can enhance customer retention, create differentiation from competitors and, potentially, increase the share price. Equally, the way a procurement team collaborates with other internal departments and works with its suppliers has a significant influence on procurement’s internal reputation as a business partner. I know from recent research that raising the reputation of procurement within the organisation has risen to near the top of the CPO agenda, highlighting how important positive internal relationships and procurement’s reputation have become.

With more government action expected and increasing public awareness of supplier relationships, the time is ripe for a shift towards a more straightforward and transparent approach. Issues related to the supply chain have never had such high profile, offering procurement a real opportunity to gain the ear of the board.

☛ Simon Atkinson is managing partner at Occumen.

 

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