Research Endorses Supplier Partnership

Jan. 13, 2005
Recently conducted research across a wide variety of business categories reveals that companies that treat their suppliers as partners have measurable financial benefits. In its 2003 study, "Negotiating and Managing Key Supplier Relationships," ...

Recently conducted research across a wide variety of business categories reveals that companies that treat their suppliers as partners have measurable financial benefits. In its 2003 study, "Negotiating and Managing Key Supplier Relationships," consulting firm Vantage Partners looked at the benefits of applying relationship management processes and metrics to supplier relations. The study of 114 companies found that:

  • When asked how much more value (in terms of cost savings, innovation, quality, etc) is delivered by suppliers with whom a company has a strong working relationship verses suppliers with whom the company has a poor working relationship, almost half of the respondents said that strong working relationships deliver at least 50% greater value than poor ones.
  • Procurement professionals also stated that they could improve their company's bottom line by realizing savings of $43 million annually through the application of strategic relationship management tools and processes to key supplier relationships. Respondents who stated their answer with the most confidence, reported that on average, they could save almost $56 million to their bottom line.
"Traditionally, procurement has focused on saving money. Particularly in a weak economy, many companies have attempted to wring out cost savings by rationalizing their supply base and concentrating volume to gain price leverage," says Los Angeles-based Larraine Segil, a partner at Vantage Partners. "However, companies have recently begun looking at procurement more strategically, as a means to gain competitive advantage." The Vantage study culled responses from aerospace/defense, business services, construction/finance/insurance/real estate, health-care services, leisure and entertainment services, manufacturing, mining/oil, pharma/biotech, retail/wholesale, transportation, education and utilities. Vantage reports that in order to achieve greater profitability and gain a competitive edge, many companies are partnering with their suppliers, borrowing elements of the Japanese keiretsu model, which emphasizes integration, long-term relationships and joint gain. Such relationships are characterized by a high level of trust, mutual respect, open and efficient communication, shared risks and rewards, commitment to each other's success and the ability to constructively deal with differences.

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