Industryweek 14831 Next Generation Newsletter White Bkgrnd

The Overlap between Employees and Suppliers

Dec. 14, 2014
The primary function of Supply Management is to be a mentor to its suppliers.

At the end of my last blog I mentioned I’d use this one to compare management of suppliers to management of employees. You might wonder how this topic fits within the scope of Next Generation Supply Management. After all, a previous blog already laid out in detail strategies for categorizing and managing the suppliers. The point here is that you can have all sorts of well-defined and proven strategies, processes, etc., for managing suppliers, but they will all be for naught if you are ineffective in managing the people who apply them, i.e., your employees.

I recognize that the manager I am today is largely an outcome of the people I’ve reported to. Over my career I was lucky enough that I would consider more of them to have been “good”—as compared to “poor”—managers, although I’ve certainly reported to my share of the latter! A few of the very good ones turned out to be more like mentors than supervisors, for which I will be eternally grateful.

I started thinking about possible overlaps between employee and supplier management several years ago when, during a dinner celebrating my first “retirement,” the owner of one of my suppliers thanked me “for being a mentor both to him and to his firm.” I had never considered my job responsibilities from that perspective so I asked him to elaborate. He replied that over the years through their dealings with the groups I had managed, his firm had come to understand how to meet the high expectations our company set for supplier performance yet still operate in a business-healthy manner. He went on to say that based on this he now considered our company a “preferred” customer—even though, as he said, we had high performance expectations—as opposed to many of his other customers whom he regarded more as just “purchase orders.”

Wow. I don’t think I’ve ever been given a higher compliment, at least professionally. Over the years, as I’ve thought these comments over, I’ve come to understand that even though you don’t often hear it laid out in these terms, the primary function of Supply Management is to be a mentor to its suppliers!

This single comment probably more than anything else led me to converge my management suppliers and employees. In doing so I’ve come to think that there are two primarily overlapping principles, namely:

  1. Make sure that the wants of the supplier/employee and the needs to the customer/employer are aligned. This certainly means understanding their motivations. Just as importantly, however, it means outlining the parameters of the relationship.
  2. Give credit where credit is due. In my experience nothing gratifies employees/suppliers more than having their good performance recognized. The most effective type of recognition relates back to the “wants” referred to in the first point.

Just as there are four Next Generation Supply Management categories of supplier, each with a different supplier-customer relationship structure, I believe there are four parallel employee categories each with their own set of employee motivating factors and employer anticipated outcomes.

The first—contract employees—would seem to parallel basic suppliers. How so? They operate under relationships based on day-to-day tactical performance. And regardless of how superior that performance, there are limits to the relationship that need to be understood. It all boils down to the fact that basic suppliers and contract employees can be replaced relatively easily, and will be, if performance falters. In my mind, the best way to manage them is to make sure this point is well understood such that each party has realistic expectations about the relationship.

Ascending the ladder of the other three supplier categories (approved, key and strategic), performance becomes more and more based on intangibles—above and beyond the actual supplying of parts—that suppliers can contribute to their customer’s business. This can be accomplished in a variety of ways but the underlying common principle of each is that they increase the supplier’s value proposition and, in doing so, give their customers a competitive edge in the marketplace.

Employees can be categorized similarly as tactical, high potential and future leaders, with each having a higher level of “intangible” contribution. So the issue again becomes whether there are common approaches that can be applied to the management of these parallel supplier/employer categories.

Approved suppliers are very much like tactical employees since they provide/perform the same product/job day-in-and-day-out throughout the year. The issue with each, then, becomes the efficiency with which this daily work is done. On the other hand, since we’re dealing with primarily off-the-shelf products (in the case of suppliers) and repetitive activity (in the case of employees), increases in efficiency are usually incremental since they are based on improvement of—but not fundamental revision to—an existing process. Understanding this and setting realistic performance improvement goals is important to the management of both approved suppliers and tactical employees. Setting unrealistic goals for approved suppliers/tactical employees, on the other hand, is generally a de-motivator, and in the end, counter-productive.

Key suppliers differentiate themselves by continually increasing their value proposition. While some of these increases are akin to the incremental efficiency improvements that you see with approved suppliers, key suppliers also deliver higher impact step-function improvements. Similarly, high potential employees routinely step out of their day-to-day routines to significantly improve process efficiency by re-engineering how they do their work.

The key to managing key suppliers/high potential employees is first to recognize their out-of-the-box approach to problem solving and next, to give them enough relief from routine daily tasks such that they can work on developing/delivering their step-function improvements. Management also needs to be ready to step in and advocate for adoption of their ideas since resistance to change may not be something key suppliers or high potential employees are positioned to address.

Partner suppliers are those that you really can’t do without. You rely on them and part of your supply management mission is to get their commitment to supporting your business above that of their other customers. The parallel employee category is called future leaders. These are often those high potential employees who have differentiated themselves from their peers with the frequency and magnitude of the step-function improvements they deliver. They are keepers. The best way to manage these strategic suppliers/future leader employees is through mentorship, which opens them up to the internal culture and philosophies needed to be successful working with the customer/employer company. I started this blog by explaining how important mentorship was in my personal development and I end this it by reaffirming the importance of applying the mentorship approach to management of your Strategic suppliers and Future Leader employees.

Regardless of the supplier/employee category, high performance needs to be individually recognized although the form of that recognition will likely be different between the different categories. Recognition accomplishes several things, including:

  • Motivating the involved supplier/employee and confirming that they are an important part of the overall team.
  • Highlighting “best practices” and accomplishments across the organization and supply base (when they are not considered intellectual property).
  • Confirming the individual category relationship equations.

I’m sure HR professionals would consider the above greatly oversimplified, but it has served me well over the years so I wanted to share it. On the other hand, I’ve found that the simplest approach is very often the best.

The next blog will expand a bit on the “give credit where credit is due” adage as it applies to supplier performance and supplier rating programs.

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