Strategic Alliances for Supplier Partnering—Keep Your Profits Up & Costs Down

By Ed Rigsbee, CSP

(1401 Words)

American business, through most of the twentieth century, has functioned based on the paradigm of adversary transactions. Squeezing the lifeblood out of all, that fall unknowingly victim. When I entered the American workforce as a salesman, in the 1970s, I learned that many small manufacturers called this the Sears Syndrome.

Decades ago, this syndrome was prevalent in situations where small companies supplied large national companies. While today, it might not be fair to degrade the name of a respected American retailer, decades ago this was conventional wisdom in the supply sectors. Fortunately today, we are seeing a major business philosophical shift happening before our eyes! The cost of doing business is steadily increasing yet only in a few industries are profits increasing to keep pace. A new belief or model—a new paradigm, has become absolutely necessary. This paradigm is collaboration.

Partnering is a current buzzword for collaboration. Partnering is the process of two or more entities coming together for the purpose of developing synergistic solutions to their challenges. Partnering is more a journey than a destination. No matter how well you think you're currently engaging in partnering—you can always do it better! Partnering is both a mind-set and it's an activity—a place where management, marketing, and philosophy meet.

Many benefits from partnering are obvious and some are not. Listed below are a few of the important reasons for you to embrace partnering:

For technological contributions or a competitive edge.
Competition from non-traditional sources has created a need to become more competitive.
Develop a market advantage and to increase distribution capabilities.
Risk sharing and financial stability.
Inventory control and automatic fulfillment for product sales and manufacturing materials.
Greater consistency in service and product quality and availability.
Better productivity and quicker response times.

Along with the benefits of partnering, also come the pitfalls or land mines. Identifying these early will greatly increase your prospects of achieving effective partnering alliance relationships. Some of the more common partnering pitfalls:

Not making an organizationally complete partnering commitment, especially from executive suites.
Alliance partners having incongruent core values.
Alliance partners having unexpected inefficiencies or poor management, causing reduced partnering capabilities.
Resistance from employees on new methods of operation.
After entering into a partnering relationship, one partner unexpectedly pulls out leaving the remaining partner or partners in need.
Culture clashes among partners.
Complacent attitude or expecting others to complete the difficult or unpleasant activities.
Hidden agendas or unrealistic expectations.

In understanding the possibility for these calamities to arise, you can plan and organize your partnering agreements to hopefully eliminate these potentially dreadful occurrences. One of the best ways to guarantee failure is not to know your partner’s strengths and weaknesses. Knowledge of your partner is imperative for successful long-term relationships. In today's unstable economic environment, you want the least amount of surprises possible. Depending on where you fit into the supply chain, as a manufacturer, wholesale distributor, or dealer/retailer, your needs and possibilities will differ.

Five steps for developing your buy/sale partnering relationships:

1. Monitor. Study your business, observe, and identify areas for improvement. Also take inventory of core strengths that might be valuable to a potential alliance partner.

2. Educate. Learn about those companies you might consider for partnering arrangements, arrangements that create a win-win result for all who participate. Ask yourself and your management team about their strengths and weaknesses? What effect would they have on our business? This is the time to study value based purchasing and to understand the difference between cost of an item and total cost of procuring the item.

3. Select. This is the critical step because all your future efforts are built on this foundation. Select with knowledge, understanding and commitment. Surely there is little security built upon a flimsy foundation. Search for the strongest materials for your partnering foundation.

4. Organize. Now you're to the point of identifying, understanding, and putting together the possibilities for an alliance. This will be your not only your partnering structure but also your road map, plan it well. This is where you must determine if you are rewarding the correct behaviors in your organization. Are you making the mistake of rewarding your purchasing agents for obtaining the lowest item cost and not for the lowest total procurement cost?

5. Charter. This is the agreement, whether it is a handshake (which I advise against) or contractually. I strongly urge all buy/sell-partnering alliances to put their agreements on paper—it's so much more clear six months or two years later. Each party's commitment to the other, on paper, will smooth a path through the potholed road of partnering. Also your charter should explain conflict resolution, as Murphy's Law is sure to emerge. Be ready for it and the conflict will be resolved timely and amiably.

Selecting your trade partners well will serve you and your company for years to come. To aid you in the search, I've identified many of the necessary qualities of a person, management team, or corporate culture with which to successfully build your alliance.

Wants to win. There is no intelligent reason to partner with a loser. This kind of relationship will only drag you or your company down to an unacceptable performance or production level. You and they must have a desire to win—to want to do better, to be useful in creating synergy with your partner!
They understand that they are still ultimately responsible for their own success. They understand the value of synergy and acknowledge that accountability goes both ways. Be careful not to always assume your partner is looking out for your best interest.
The leader and or contact must be an active listener. To truly keep in touch with the heartbeat of an alliance, active listening is critical. This helps you to know what you need to do extra and when the other side is falling behind in their commitment to you. Alertness from both sides equals mutual success.
Understands and cares about what drives their partner’s' businesses. Because successful partnering is about synergy, you must consistently give the correct kind of value to the relationship. Regular Relationship Bank deposits are always required before withdrawals are possible. You can only offer value to the relationship by knowing what your partner’s business considers as being synergistically important.
Responds well to, and acts on, feedback. The only possibility for forward and beneficial movement occurs when leaders are willing to accept counsel. None of us are smart enough to know it all. Notice I didn't mention criticism—it was intentional.
Flexibility, especially when events or circumstances are not what was expected. If you don't have the ability to change direction when the road ahead is washed out. You'll find yourself wishing for rescuers as you uncontrollably float down the stream. Flexibility is absolutely necessary because things will never be exactly as we expect.
Trust, integrity and respect for others. I found this to be the common thread weaving through an organization’s consciousness—from the factory floor to the executive suite.
Seeks win-win arrangements and solutions. Earlier, I stated that you must look after yourself, but if that is all you do, you're of little value as a long-term buy/sell partner. You must win for the sake of your business. At the same time your partner must also win. This will develop a desire within them to want to continue in the relationship. The partnering advantage becomes stronger the longer the relationship lasts.
Understands that partnering is a relationship of interdependence, not dependence or independence. Visualize your partner and yourself as partially overlapping circles. The overlapping parts of the circles are your areas of mutual value. This overlapping area is also your area of interdependence.

Buyers and sellers, working together for mutual improvement is the great benefit received from partnering. Be careful of unrealistic expectations on one another. Too often one’s perception of disloyalty from a partner can in really be an unrealistic expectation. Communicate your needs, as both benefits and pitfalls are inherent in partnering. The benefits usually outweigh the challenges. Be careful and methodical in the search for alliance partners. Take care in carefully structuring the arrangement. Do this, and you will succeed for years to come. Remember—partnering is not instant gratification but rather a long-term paradigm for success.

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Ed Rigsbee, CSP is the author of PartnerShift, Developing Strategic Alliances and The Art of Partnering. Rigsbee has over 1,500 published articles to his credit and is a regular keynote presenter at corporate and trade association conferences across North America.