The story of a recovering procurement professional
“Envision a business that embraces outsiders as insiders, inviting its suppliers into the family circle and treating them with the same love and care it showers on its customers and team members”. Conscious Capitilism – Liberating the Heroic Spirit of Business by John Mackey and Raj Sisodia
Why do we need Supplier LOVE? The business imperative.
With as much as 70% of revenue now going to third parties (according to Proxima Group). never before have suppliers been more important stakeholders in an organisations success. Yet, despite significant investment in procurement capability and strategic focus over the last few decades, many supplier relationships remain transactional at best and at worst, adversarial. Businesses continue to prioritise shareholder value above all else, sometimeseven at the expense of customers, employees and the environment, but almost alwaysahead of suppliers’ interests. One might be forgiven for thinking that ‘costat any cost’ is the primary operating model for these businesses today.
Conscious businesses understand that this is not sustainable. Fortunately, there is a better way but it requires a fundamental shift in the way we define stakeholders and value:
- A shift from ‘stockholder’ oriented decision making to stakeholder orientation: Replacing the traditional trade-off mindset (“I win, you lose”) with a focus on creating mutual value for all stakeholders including investors, employees, customers, suppliers, the environment and society.
- A shift from shareholder value to shared value: Recognising and accounting for value creation (and value destruction) in all its forms including economic, social and environmental impact.
In the following pages, I share my story. I share the experiences that have shaped me as an individual and led me to the opinions I hold today. I outline the problems I see with traditional approaches to supplier relationships and I offer a vision for the future. I do not claim to have the solution so I suggest some simple, but meaningful steps forward. It is my hope that if you care enough to read to the end, you will join me in my mission to spread Supplier LOVE or you will challenge me to make it better.
Becoming a more conscious procurement professional
For many years I was an “unconscious” procurement professional. Like so many of my peers, I fell into procurement with no particular plan or strategy other than “getting a good grounding in business”. I started out as a Market Maker with a global consultancy specialising in e-sourcing (back when everything with an e in front of it was uber-cool!). It was a great foundation on which to build a career in procurement because I was literally “making markets”; figuring out what my clients needed (what they REALLY needed, rather than what they THOUGHT they needed) and then figuring out which suppliers had the capability (or COULD have the capability) to meet those needs. To this day, I still believe that is the fundamental role of any procurement or supply professional; to put themselves right in the middle of business to business (B2B) relationships and to become the lubricant (not the glue!!!) that facilitates great business relationships.
I was successful and I climbed the consulting ladder working on major global accounts in diverse industries from mining to fast-moving-consumer-goods (FMCG) to oil and gas. Subsequently I took a break from consulting, with leadership roles in industry, first with a Big Four bank and then a major transport and logistics company. As I got older and perhaps a little wiser, I became increasingly uncomfortable with the way business seemed to work generally, and the role I was playing in it specifically. Policies and process became my focus and people turned into employees to be managed and controlled, rather than human beings to relate to and collaborate with. The organisations I was working with on both the buyer side and the supplier side, became so big and cumbersome that it became impossible to see how any one individual could make a difference… me, my suppliers, my stakeholders… even my executive leaders. The system had taken over.
In 2008, around the same time my first child (a daughter) was born, I knew something had to change. In hindsight it was no coincidence that becoming a father fundamentally changed my view of the world and what I was here for. I thought about leaving procurement and searching elsewhere for my next step up the corporate ladder but it was hard to find anything else in business that offered the breadth, exposure and influence that procurement did. So I decided to move back into consulting but this time with a very different consultancy. A small business with a niche that focused less on the procurement process and more on the people in procurement. While I still worked with some very big global organisations, I was fortunate to be able to stay outside ‘the system’ to a certain extent. Through consulting, training, recruitment and facilitation I was able to really get to know the people behind the procurement process. And through helping them develop as leaders, I developed myself as a leader and reignited my passion for what was possible in business-to-business relationships rather than seeing simply what was broken. My awakening had begun.
What’s in a name? The problem with “procurement”
According to dictinonary.com one definition of procure is “to bring about, especially by unscrupulous and indirect means” while another (and I believe the original use of the term) is “to obtain (a person) for the purpose of prostitution.” With such questionable origins, it’s little wonder the procurement profession has struggled to define its identity.
There is no doubt there has been significant evolution from the bad old days of purchasing, but the question is, have we have come far enough? If Purchasing is to Procurement what Personnel is to Human Resources (HR), then what should we make of HR’s evolution to People and Culture? It’s time Procurement recognised that suppliers are people too. More to the point, with the continuing trend towards outsourcing together with the prediction that by 2020, 50 percent of the workforce will be independent freelancers (according to MBO Partners), how long before an organisation’s greatest asset is no longer its people, but its suppliers?
Corporate heroin – our savings addiction
Procurement departments and the organisations they serve have become addicted to savings. Procurement started with a worthy ideal; to strategically leverage an organisation’s spend and supplier relationships to create value. There are so many ways to create value; through service, quality and innovation to name a few. Somewhere along the line, cost savings were found to be the fastest and easiest value to deliver so Procurement started to get noticed for that. The more savings it generated for the organisation (predominantly under the influence of the Chief Financial Officer) the more the organisation demanded and pretty soon, like a form of corporate heroin, savings became an addiction.
Procurement needs a new metric. A new measure of success that reflects its impact, not its output. Just as conscious businesses are learning that profit is a by-product of business with purpose, so too savings will be a by-product of procurement with purpose. What have we really “saved” if we drive down our suppliers’ pricing to unsustainable levels? Levels where they are forced to compromise on service and quality or worse, safety and ethics? Procurement needs a metric that reflects the exponential impact of its decisions throughout the supply chain. The impact on suppliers and their employees… and suppliers’ suppliers and so on. This metric must measure real human value. Not just economic value.
Rehumanising business to business relationships
Process is what enabled the industrial revolution. It allowed organisations to leverage resources at scale, to command and control. To reduce risk by reducing the scope for human error. But in doing so, the industrial revolution dehumanised our organisations and the processes became more important than the humans they were designed to serve. Procurement is no exception. The ‘procurement process’ has removed the requirement for human judgement to determine what a good or a bad deal looks like and in doing so has largely removed human empathy from the decision. As a result, many procurement decisions do not consider human impacts.
We need a new licence for decision-making in procurement. We need to rehumanise our relationships with stakeholders, suppliers and society so that human empathy is once again brought to the fore in our decisions. We need to remove the processes that promote “bad deals” and replace them with purpose-driven individuals who make the “right decisions” for the organisation and ultimately the society in which it operates.
So what is Supplier LOVE?
Let’s not over-complicate this. Getting started really is as simple as giving your suppliers more LOVE:
L is for Listen. Engage with your suppliers’ people at every level and at every opportunity.
O is for Open. Be willing to open up and invite your suppliers into your business.
V is for Voice. Promote your suppliers, internally and externally – help them to grow.
E is for Easy. Make it easy to do business, remove barriers and reduce friction.
Whether you call yourself a “procurement professional” or not, the point is, if you deal with suppliers then this applies to you. And if simply doing the right thing isn’t enough to persuade you then read on.
What’s the point? The benefits of Supplier LOVE.
Taking a more conscious approach to supplier relationships creates significant value for many different stakeholders:
- Stronger internal brand and a higher level of influence with internal stakeholders
- Increased supplier innovation and preferential access to new products and services
- Reduced reputational risk from greater supply chain transparency
- Higher levels of service and quality from more responsive suppliers
- Reduced costs and greater efficiency as friction and complexity are removed
- Improved lead times with fewer delays and other supply chain disruptions
- Greater levels of employee satisfaction from more meaningful work
- Competitive advantage from ‘customer of choice’ status with key suppliers
Case Study: Why Aldi’s suppliers love them more than Coles or Woolies
Since taking a drastic pay cut to start my own business last year, my family and I have reviewed quite a number of our expenses, including the weekly grocery shop. Venturing for the first time into the German supermarket Aldi, I was pleasantly surprised to find a lot more than just strangely-named European biscuits and the cut price coffee machines I had heard they were famous for. I saw many recognisable brands on the shelves but also quality substitutes for almost everything we needed, including a lot of fresh produce. Perhaps most surprising is that much of it is produced locally right here in Australia.
Even with the aggressive (and highly publicised) discounting at Coles and Woolworths, we still save a great deal when we shop at Aldi. Imagine my surprise then, to discover that according to an article by Adele Ferguson in the Sydney Morning Herald, Aldi is the retailer of choice for Australian grocery suppliers. The article cites a number of enlightening statistics from the closely guarded Nielsen Retail Barometer including a retailer scorecard which asks suppliers to rate the supermarkets. According to the article:
- On ‘retailer of the year’; 64 per cent picked Aldi, 21 percent Coles and only 7 per cent picked Woolworths.
- On ‘supplier relationships with retailers’; Aldi received a net rating of 73 per cent, Coles 57 per cent and Woolworths 9 per cent.
- On ‘business conducted professionally’; Aldi was rated 86 per cent, Coles 56 per cent and Woolworths 36 per cent.
- On ‘fairness of negotiations’; suppliers gave Aldi a 37 per cent rating, Coles 26 per cent and Woolworths 24 per cent.
- On ‘supporting supplier innovation’; Aldi was rated only 29 per cent with 45 per cent for Coles and 34 per cent for Woolworths.
- On ‘strength of management team’; Aldi received an 86 per cent ranking with 77 per cent for Coles, 37 per cent for Woolworths.
- On ‘strategies for success’; Aldi rated 94 per cent with Coles at 87 per cent and Woolworths at 37 per cent.
- On ‘innovation’; Aldi was rated 57 per cent with Coles at 69 per cent and Woolworths at 17 per cent.
In a media statement earlier this year, Aldi credited long-term relationships for its enviable status with suppliers, “ALDI’s long-held practice with suppliers involves forging long term, sustainable relationships and working closely in partnership to provide Australian shoppers with the best quality products at competitive prices. We have a strong commitment to sustainable relationships with our suppliers and since opening in Australia in 2001 have been instrumental in providing economic security for many Australian food suppliers and manufacturers. We provide consistent, meaningful volumes and therefore viable income to those we work with.”
In the same statement Aldi supplier of 13 years Veli-Velisha Fresh Produce was singing their praises: “ALDI’s fairness and understanding in supplier issues is to their credit. Our business has always found ALDI to pay appropriate market prices and to be flexible whenever needed to help accommodate market fluctuations. They have a strict payment system that they always adhere to.”
The grocery retail industry might not be the first place you’d expect to look for Supplier LOVE but personally, I enjoy my weekly shop all the more knowing that the love I experience as a customer in the aisles and at the checkout, flows right through the supply chain.
Where to from here? Measuring what matters.
I believe the time has come for a new conversation with and about suppliers. For too long organisations and the individuals within them responsible for supplier relationships, have viewed suppliers as an expendable resource. Many of us (particularly my peers in the procurement profession) have been so focused on delivering shareholder value and influencing our internal stakeholders, that we have used these objectives to excuse all manner of sins with our suppliers. We then lament the lack of responsiveness from our suppliers; their arrogance, their apathy. We wonder why they don’t value our business and why they continue to underperform.
I believe we need a new measure of success for supplier relationships. One that is no longer based solely on short-term financial benefits (e.g. cost savings) but that is a more accurate predictor of long-term value creation. We need to stop relegating the critical human values of trust, integrity and respect to the ‘soft benefits’ section of our recommendations and put the quality of our supplier relationships front and centre as the primary measure of success for our activities. It’s time to recognise that the quality of our relationship with any given supplier, is the sum of all the interactions and touch-points between our people and theirs. If we want the very best from our suppliers, then we need the very best from their people.
Such a measure must be simple enough to be used, yet powerful enough to be effective. It must capture the breadth of touchpoints with suppliers and the depth of their emotions. It will do for supplier relations, what the Net Promoter Score™ has done for customer relations and it will become the global standard by which organisations measure the health of their supplier relationships and the culture of their supply base.
Taking the next step… it starts with you
If you’re in a supplier-facing role in your organisation, ask yourself whether you’re showing your suppliers enough LOVE. Remember, YOU GET THE SUPPLIERS YOU DESERVE, so just like any relationship, it starts with you… be the change you want to see.
Continuing the conversation
My mission is to spread Supplier LOVE.
That is why, after spending more than a decade in and around large corporates, both as a management consultant and as a procurement and supply professional, I decided to do something different.
Through my facilitation and coaching work I help mid-sized organisations and professionals with supplier relationship responsibilities in larger organisations, to unlock new sources of stakeholder value by transforming their supplier relationships.
If you believe that your supplier relationships should be collaborative, trusting partnerships that create enduring value for all stakeholders, rather than a series of adversarial deals and transactions, then we need to talk. If you believe that you personally, can raise your level of consciousness, to become a more influential leader in your business and in the community then, well… we need to talk.
In the words of Ed Freeman, the Godfather of Stakeholder Theory, “Conflict Rocks!” and where there is conflict there is creativity. So whether you agree with my views or oppose them, let’s debate and discuss the state of supplier relations and let’s co-create a new future together.
To receive an invitation to attend an upcoming event or for a confidential discussion, email me at email@example.com or call me on +61 407 836300.