An interesting discussion broke out in a workshop last week around the subject of what makes a strategic supplier, and it followed a path which is familiar from other discussions in other businesses. In this case, there appeared to be a need for most categories to have a strategic supplier identified and engaged with.
I would suggest that this is not the best way to think about who our strategic suppliers are. Suppliers are not strategic because we spend a lot of money with them. They are not strategic if the business fails if they don’t deliver ( Risky, yes; need close management, yes. Strategic – not necessarily).
Here it is: Suppliers are strategic when they are able to advance the strategy of the business.
It’s a pretty simple definition, and provides a very simple way of testing if a supplier is currently strategic, or ever will be.
So, what could that definition mean? Firstly, there is a need for us to understand the strategic direction of the business ( or our part of the business). That might be about product growth, diversification, growth by acquisition, fundamental survival – whatever the senior management team is currently focussing on. Without some clarity in that area, it will be hard to test if a supplier is strategic. Secondly, the supplier must have the skill / capability / focus / reach or other means of working with us to advance that strategy. This means that we have to really understand how that supplier will be able to help us do that: we really need to understand their capability. Thirdly, there must be willingness on both sides for the supplier to be engaged at that level.
However, there are further implications. To make this work properly, we need to ensure that there is capacity in our organisation to work with the strategic supplier, so we are able to align effort to deliver the strategic benefit and acceleration. Typically, this means that we do not have the organisational capacity to work with many strategic suppliers – there would be too much stress on the business.
Even more critically, we need to have focussed time available to capture the additional business strategic value that we are trying to access. This is really important. If time is not available, then we are making a clear statement that either it is not crucial to support the strategic aims of the business (in which case we are a tactical delivery function) or that we are not clear how the strategic benefit will be captured or accrued. In this latter case, we should be developing a clear relationship strategy which describes how we will be getting at the additional strategic value (for both parties) and aligning ourselves to do that.
Using this thought process as a template for making decisions on which suppliers are strategic and which are important cuts through a lot of time wasting and fluff. It also engages us in a clear discussion with the senior management team on how we will drive genuine strategic value into the business.
This is a big area; we all need to start getting it right.
Mark Hubbard is Founder and Co-CEO of Positive Purchasing