As kids enter Kindergarten, one of the basic lessons we teach them is learning how to play well with other children. Almost any kindergartner will tell you, “If you play nice with others, they will play nice with you.” But as adults, it seems as though we’ve forgotten this basic lesson we teach children – especially in the daily routine of our working relationships. Procurement is no exception.
For instance, from a procurement perspective, it has often been argued that it’s easier to cut costs than to raise revenue. While this may be true on paper, today we are finding that organizations are increasingly taking supplier relationships more seriously by implementing technologies that manage supplier relationships such as contract management and supplier performance management.
In fact, recent research helps validate the investment in these supplier-focused areas by pointing out that it is more than cost that determines the outcome of profitability and long-term value. At the IACCM conference I attended a few weeks ago in Chicago, I heard Dr. John Henke from Planning Perspectives, Inc. speak about their research called OEM Profitability and Supplier Relations.
Overall, the study provided great insights into the automotive industry from 2001 to 2013 of the six major North American automotive OEMS (Chrysler, Ford, Honda, GM, Nissan, and Toyota). Listening to the findings, one fact from the Supplier Working Relations Index stood out: OEMs with good relations typically asked for lower price reductions from suppliers with whom they had better relations.
Moreover, suppliers that had good relations with each OEM typically gave that OEM even greater price concessions relative to the price reduction that had been asked, a trait also found in non-automotive related industries.
What this tells us is that while technologies and tools like supplier and contract management are used for maximizing efficiency and creating value, we cannot forget the basic Kindergarten answer that creating positive supplier relationships is integral for making an impact on the bottom-line.
Are you practicing the basic Kindergarten lesson of “playing nice” with your suppliers? Has this simple lesson often proven better results? Share your thoughts by commenting below or tweeting @climberakis.