By Dr. Tom DePaoli

Supplier relationship management is the process of developing a deep collaborative partnership or alliance with a supplier. The supplier becomes a true and trusted business partner. The relationship is characterized by open disclosure, cultural calibrating and joint beneficial projects. Ultimate alliance partnerships are at the highest level. These should be reserved for a few suppliers, with criteria for selection being that the supplier can help a company obtain a dominant competitive advantage.

Use a five-stage model or roadmap to develop your relationships with suppliers. The deeper the relationship desired the further along the roadmap one progresses. Suggested activities for the supplier are listed at each stage of the relationship. Of course there must be willingness for the supplier to enter into a relationship and clear quantifiable metrics must be used. Trust is not always easily quantifiable. Good luck with the roadmap and your relationship building!

Stages of Supplier Relationship Building

Initiating Stage

This stage is characterized by initial meetings where small tasks are attempted or reviewed. The process is primarily task related and the mutual needs are slowly being discovered. This is the stage were socialization takes place with a supplier via visits, dinners, mutual presentations and sharing more information. This is a low key problem-solving stage. No major decisions are made. The emphasis is on sharing information and checking if the relationship can become deeper.

Examples of activities are:

• Sharing understandings of administrative and IT procedures.

• Understanding procurement rules, transaction flows invoice rules, purchase order format. Minimizing the upsets before they can happen.

• Comparing some base data, like on time deliveries. Discussing the differences in transactions and discrepancies.

Experimenting Stage

This stage starts to intensify the relationship. The emphasis here is to experiment with problem-solving activities that are fun. They should have a low risk of self-disclosure. The purpose is to discover if a deeper partnership is possible.

Examples of activities are:

• Each partner maps the other’s actual supply chain. This in a learning activity and not meant to be critical. Potential partners present their understanding to each other. Both parties increase learning during the exercise. We developed a visualization technique in the paper industry where the group imagined they were a wood chip and then discussed all the transforms and processes that were happening to the wood chip until it transformed into a toilet paper roll. The “how” the supplier chain is presented, such as props, methods are up to both parties’ discretion.

• The administrative, transactional or paperwork supply chain is mapped in a similar manner.

• One mutual low-risk problem is agreed to and a joint mini-case analysis conducted. Topics such as electronic communication, pay-on-receipt, receiving etc., are compared and parties agree to a common solution or understanding. This is usually an issue where both parties are close but a few loose ends need to be tied.

Intensifying Stage

At this stage trust and support with open disclosure start to become the norm. Feedback on the status of the relationship is frequent. Rules of relationship behavior are developed.

Examples of activities include:

• Some mutual cost sharing and cost driver sharing information.

• Intensified effort to streamline administrative bottlenecks in supply chain and to eliminate all non-value adding discrepancies so both parties can focus on more important issues and the relationships. Eliminating the “irritants”.

• Mutual work load or administrative reduction agreements and negotiations on any stickler performance measures.

• More thorough reviews that concentrate on new mutually beneficial projects.

Integrating Stage

Both parties start to recognize the special relationship and exchange symbols of the relationship. Terms like “us” and “we” become the norm. The partners tend to rely on each other more and start to integrate processes.

Examples of activities include:

• Full financial disclosure.

• Exchanges of corporate symbols such as pins, awards etc.

• The integration of some business processes. One partner may lead the sharing of a process or skill with the other partner such as assisting in electronic communications setup. Actual assets may be shared.

• Some mutual marketing or campaigns are started.

• Employee sharing and exchange of executives becomes standard.

Bonding Stage

This is the final stage of coming together and the deepest relationship.

Examples of activities include:

• Joint R&D ventures and sharing of innovations all along the supply chain simultaneously as they are discovered.

• Full design stage collaboration.

• Mutual executive development and career path plans.

• Sharing of IT resources and customers information.

Follow this roadmap to ensure SRM success!