Author: Matt Perfect
Recently I was chatting with a client about a particular supplier relationship that was proving troublesome for her. She was trying to renegotiate terms with a long-term supplier as a result of recent changes in the business and was finding it hard to get the supplier excited about the changes. Sound familiar?
When I asked her why she was in this relationship, she stared at me blankly. Eventually she said, “I have no idea. They were appointed long before I got this role. We’ve been dealing with them forever.”
Sadly, this is extremely common in business relationships (and probably in personal relationships too, but there are plenty of other articles on that!). And not just in long-term supplier relationships either. Even in new relationships, that have recently had significant attention through sourcing activities and negotiations led by experienced practitioners, I am astonished at how hard it can be to articulate the real reason for the relationship. The unique value that exists only in this relationship, between this particular customer and this particular supplier. The value that neither organisation can create alone. The value that answers the question, “How is the world better because these two organisations worked together?”
Being able to answer this question, and identify the “why”, the purpose behind your business relationships is important for a couple of reasons.
Firstly, it helps to align both organisations around a common interest other than profit or shareholder value. The problem with profit, is that although it is possible (and in fact desirable) for both organisations in a relationship to increase their profits by working together, when profit is the only goal, it tends to stifle creativity. Profit as a goal, usually leads to self-interest; the supplier defaults to increasing revenue and the customer defaults to reducing cost. On the face of it, these objectives are diametrically opposed and the two organisations end up in a stalemate.
Secondly, by focusing on a higher purpose other than profit, both organisations can tap into greater capacity, creativity and productivity from stakeholders, particularly employees. Dan Pink, TED speaker and author of DRIVE: the surprising truth about what motivates us, highlights the significant disconnect between what science knows and what business does when it comes to motivation. Drawing on many high profile studies, he demonstrates that:
Human beings are motivated not by extrinsic rewards such as money or ‘carrots and sticks’, but in fact by intrinsic rewards such as autonomy, mastery and purpose.
What does all this mean for you? If you’re a Chief Procurement Officer or other senior executive it means better supplier relationships with more of the good stuff (like innovation and productivity improvements) and less of the bad stuff (like high transaction costs and risk). If you’re a supplier-facing professional, it means all of the above PLUS more meaningful, enjoyable work!
If you’re looking for examples of relationships with purpose, how about Ben & Jerry’s Ice Cream and their chocolate fudge brownie supplier Greyston Bakery? Ben & Jerry’s has scale and Greyston Bakery creates social impact with its employment practices. One might say the purpose of their relationship is “Impact at scale: ice cream that not only tastes good but does good”.
The purpose of a relationship doesn’t have to be so explicitly social as the Ben & Jerry’s example though. Consider a typical procurement case study: the big bank and its stationery supplier. Simply shifting the focus of the relationship from, “How can we reduce the cost of stationery?” to “How can we make life better for our employees who use the stationery?” can be enough to unlock significant new sources of value. Innovation increases, leading to greater productivity and user experience improves, leading to better stakeholder engagement and support for the relationship on both sides. Ultimately of course, costs reduce and profits increase for both the supplier and the customer.
So next time you are working with a supplier, ask yourself, “What is the purpose of this relationship?” If you’re struggling to find one, look for the human impact of the relationship (good and bad). Where does this relationship touch people? Whose lives are changed, however significantly or not? Shift your focus from “profits and products” to “people and purpose” and you’ll be surprised at the new directions your conversations take.
Matt Perfect is a Procurement Coach and founder of Something Great. Matt’s based in Melbourne. Find him on LinkedIn here: https://www.linkedin.com/in/mattperfect?trk=pulse-det-athr_prof-art_hdr