Sweeten The Deal

Sweeten The Deal

Supplier relationship management is a formidable tool in global competition.

It's an overused expression, but it's true: You catch more bees with honey than with vinegar.

For Richard B. Jacobs, vice president of supply chain management at Eaton Corp., making sure the honey jar is full is a best practice he insists on performing.

"In order to have a really successful supply chain you need to have a good relationship with those critical partners and suppliers to ensure not only are you going to get supplied, but to make sure that the philosophy between your company and their company are similar and the expectations that they have of you and that you have of them align," says Jacobs.

Good relationships are critical for Eaton, a diversified industrial manufacturer with 2006 sales of $12.4 billion.

According to Jacobs, Eaton plans to grow to $18 billion by 2010. If the company is going to grow by 50%, it needs to know its suppliers have the financial wherewithal to grow with it.

"Unless you have high-level relationships with your really critical suppliers, you really don't know if those suppliers are with you or not. You could have a surprise," explains Jacobs.

Jacobs offers some basic principles of how to manage suppliers:

"Sometimes people are so focused on the piece price that they are picking up the quarters and they are walking over the one-thousand-dollar bills."
-- Richard B. Jacobs, vice president, supply chain management, Eaton Corp.
Set clear expectations so everybody knows where he stands.

According to Vince Hartnett, president, Penske Logistics, Eaton does offer clear objectives. "That is a strength of Eaton Corp. -- there is no misunderstanding of what we need to do and how we are going to measure it," says Hartnett. "It's important at all times to be on the same page, and we embrace that philosophy."

Penske is the lead logistics provider for Eaton's business segments in Europe and North America.

Make sure you have the right ethical standards and treat your suppliers as employees.

"Our organizations put the quality of people, business ethics, doing business in a way that gives an opportunity for everybody to win," says Hartnett. "You can sit in a meeting with the Eaton team working together with the Penske team, and you couldn't tell who worked for Eaton and who worked for Penske."

Maintain good relationships with senior executives.

Jacobs suggests going to lunch or dinner with key people to talk about where your business is going and, more importantly, where their business is going. Realize that your company and your supplier's company are both selling value. Ask for ways to help quantify value propositions so that both companies can be successful together.

"Sometimes people are so focused on the piece price that they are picking up the quarters and they are walking over the one-thousand-dollar bills," says Jacobs.

Hartnett agrees, noting that the most progressive companies that Penske deals with are those that go beyond the commodity approach to services.

"When our customers come to us they are giving us trust that we are going to make their supply chains a competitive advantage -- and that means we need to be willing to invest extra costs in the relationship to attain strategic goals. If it is simply a matter of price, we're less likely to make that investment -- so there is not likely to be a return," explains Hartnett.

Celebrate success.

Eaton hosts an annual recognition dinner that celebrates best-in-class suppliers.

"We don't ask them for any money, and it's not about us telling them they need to step up," says Jacobs. "We just want to thank them for doing a great job and for helping Eaton be successful."

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