Buyers are being warned not to “micromanage” suppliers or they may become unhappy and add a “15% pain in the ass charge” to prices, according to academics.
In a blog for the Harvard Business Review the group of academics said disruptions had brought to light “flawed relationships” and building trust with suppliers was essential to build a resilient supply chain.
The group – Kate Vitasek, member of graduate and executive education faculty at the University of Tennessee; Karl Manrodt, professor of logistics at J. Whitney Bunting College of Business and Technology; and Gerald Ledlow, professor at the University of Texas at Tyler’s Health Science Center – said building trust could lead to cost benefits, improve procurement processes and performance, and promote “a general feeling of positivity and happiness at work”.
The blog said: “The pandemic-related disruptions of supply chains around the world have painfully brought to light flawed supplier relationships. They have made it abundantly clear that trust between companies and their suppliers is integral to building a resilient supply chain.”
Low trust in a business relationship is a “two-way street”, the academics said. “Unhappy suppliers don’t like to be micromanaged. When that happens, the supplier’s account management team may become frustrated.”
This can risk suppliers adding an additional 15% “pain in the ass” charge, they warned.
“These behaviours significantly increase transaction costs associated with doing business and almost always prevent the organisations from wanting to collaborate to solve more strategic challenges.”
In establishing trust with suppliers, procurement teams should look to improve their communication and foster innovation with suppliers.
The academics highlighted three areas:
1. Trust starts with a cultural fit
A cultural fit with suppliers is a “critical” factor for success, Vitasek, Manrodt and Ledlow said.
They defined a successful cultural fit as a similar approach to how both organisations work, communicate and approach decision-making.
They described how one medical device company they spoke to and its supplier “amicably” parted ways after they concluded they had different operating cultures. “The parties agreed on a fair way to compensate the supplier for helping support a smooth transition to the next supplier,” they said.
2. Business models matter
Deciding on a clear sourcing model can help businesses align with suppliers who have similar sourcing approaches and allow them to foster healthier relationships.
Different approaches to sourcing range from “highly transactional” approaches, where goods are bought with a simple purchase order, to “highly strategic” contracts which are based on achieving ambitious business outcomes including increasing speed to market, and prioritising innovation to drive sustainability targets.
3. Viewing trust as a strategic choice
Can you take a broken and distrustful business relationship and turn it into a healthy relationship? The answer is “a resounding yes” according to the blog. “But doing so doesn’t just happen; it is a strategic choice supported by conscious behavioural changes.”
Implementing measurable definitions and assessments on what trust means can provide a quantitative measurement of “relationship health” with suppliers. Quantitative measures and outcomes for what trust means to the business can highlight gaps where not-so-trustful behaviours are creating friction.
“Our research can be summed up with a simple equation: trust = happiness, in terms of lower costs, improved performance, innovation and even a general feeling of positivity and happiness at work,” the blog said.
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