Two of my recent columns discussed the issue of Original Equipment Manufacturers applying leverage in negotiations with suppliers. Those two columns were based on logic and common sense. The following column, which includes excerpts from one of my 2015 columns, also has a basis in both but tries to put a comic spin on the issue.
If your business relationships are based on a strategy of manipulation and imposing your will on your partners, they're not going to end well.
I’ll admit it. The title of this article might seem a bit provocative. After all, using leverage to impose your will on people close to you isn’t something that most people would consider, is it?
The Leveraging of Friends
First, let me admit that I have no formal training in psychology, nor have I been awarded any certifications in relationship management, counseling, etc. that qualify me to preach on the subject of personal relationships. On the other hand, I have significant experience studying the subject at the School of Hard Knocks University which, perhaps, gives me enough background to have some level of credibility. Based on this education, I can confidently lay out meaningful parallels between interacting with friends and managing strategic suppliers.
Developing and maintaining friendships can be a lot of work and require a lot of investment. The same can be said of doing business with strategic suppliers. Why? Because even though both types of relationships are based on a critical mass level of commonality between interests and philosophies, that commonality is rarely 100% aligned. And even when a lot of time and effort is spent in their development, neither type of relationship is guaranteed to last as interests and philosophies can diverge. The longer a relationship continues, though, the more difficult—costly—it can be when it breaks down since friends and strategic suppliers tend to weave themselves into the very fabric of your life and/or business. If this analogy makes any sense, then understanding why friendships fail is important, since this knowledge can be applied to strategic supplier business relationships.
The best friendships are those where both sides feel they gain common benefit from the association. When one side starts feeling they are contributing more than the other that should be seen as a sort of red flag warning of possible trouble ahead. A similar scenario can be laid out concerning relationships between strategic suppliers and their customers. How does this relate to leverage? When you leverage a friend or strategic supplier, you are immediately setting up a transaction where one side wins at the other side’s expense; i.e,. creating an imbalance. Over time, such imbalances lead to one side or the other feeling like the relationship is no longer mutually beneficial. When this happens, problems are likely just over the horizon.
Friends are also who you go to when in need of help. In my experience the biggest red flag that a friendship is becoming imbalanced is when requests for assistance are seen as an opportunity for one side to take advantage of the other. When a friend needs help, the last thing he or she needs is to have the person they’ve requested it from respond along the lines of, “Sure, but here’s what you need to do for me you want my help”—and the thing being asked of the requestor being something they likely would not agree to under normal circumstances. Sure, underlying all friendships is an assumed quid quo pro that when one party aids another, return assistance will be expected. But applying leverage crosses the line relative to that kind of understanding.
When the response to a favor request is leverage—again, imposition of will that creates an imbalance—it ends up being anything but mutually beneficial. In fact, it sets the stage for a response of leverage when the roles are reversed, i.e. when you need a favor. And over time, you will eventually need a favor.
Most of the time, I walk away from friendships that involve the other person making a habit out of leveraging—or trying to take advantage of—me. In my experience, the healthiest relationships with strategic suppliers were ones where little or no leverage was applied.
Friendships and strategic supplier relationships can be healthy and beneficial but when the other side too often resorts to leverage I recommend assuming the costs and risks necessary to remove yourself from that relationship since, in my opinion, there is little chance the relationship will yield mutual beneficial outcomes over the long run.
In a recent column I alluded to a Chief Procurement Officer of a large OEM—whose reputation was based on leveraged win-lose negotiations—saying to a supplier: I know the agreement says what it says, but in the spirit of the partnership, you should give us more.
Really?
The Leveraging of Spouses
All OEMs know that there are certain sources that they are for all intents and purposes “stuck” with, i.e., strategic suppliers. The question then becomes, “What happens when OEMs apply leverage against them?” Please don’t infer that I’m saying marriage is a condition of being stuck a spouse, but I do think there is an analogy that can be made!
As I said before, I have no certifications on relationship management, but I can offer some advice that I am 99. 9% sure should be followed—namely, don’t try to impose-your-will on your spouse using leverage. Just trust me on this. I can tell you that if I had applied a strategy of leverage in working out issues with my wife, I would likely either be missing some pretty important body parts, no longer married or both. Can you expect these same kinds of outcomes when you apply leverage to strategic suppliers? In a word, Yes!
Leveraging a strategic business partner on an ongoing basis is akin to basing your marriage on a strategy of imposing-your-will on a spouse. At a minimum, this will not result in a very happy existence for either party.
In my marriage I’ve tried (Cindy, if you’re reading this, honestly, I’ve tried) to approach issues in a collaborative manner. It must have worked at least somewhat, since Cindy and I will have been married 41 years this coming June 30. In working out our issues, we’ve usually tried to increase the size-of-the-pie such that neither size had to feel like they had been pushed by the other into a position they didn’t want to be in.
Does this mean that there won’t be disagreements and points of contention between the two sides of a marriage or an OEM — Strategic Supplier relationship? No. The difference is how the two parties—whether husband and wife or OEM and supplier—settle those differences. Again, leverage is the not right approach to use in doing so. So what is?
I’ve always operated with a belief that “there is always middle ground if both sides want to find it,” and it has worked out well for me in both life and business. Over the years this single idea has produced a lot of benefit for me personally and for the companies I’ve worked for/with. But what do you do if you run into a party that isn’t interested in finding middle ground? That depends. I personally have always given suppliers two chances at using a common ground approach. After being spurned a second time, however, I have to admit I’ve taken the gloves off and used leverage or whatever I needed to achieve the business results my company wanted. And then I started an intense search for an alternate supplier who would be interested in working on a finding the-middle-ground basis.
Read more of Paul Ericksen's supply chain management articles
Now I know that some people may have read this and my last two columns and said to themselves:
“Blah, blah, blah—this guy is not talking real world. To do my job, I need to use leverage where-ever and whenever ever I can. He wouldn’t last a minute if he had to hold down a real world job like I have."
My answer to this is that I strongly beg to differ.
I have very successfully held down real-world, executive-level supply management jobs and “hit” the numbers my bosses expected out of me without relying on short-term counterproductive strategies like leveraging. I know it can be done and that doing so leads to overall better results. Granted, if all you are measured on is month-to-month material variance, leveraging can a good tool for hitting those kinds of numbers … but only if you are nimble enough to stay ahead of the messes you create such that someone else has to do the cleaning up.
If you’re still a non-believer about how counterproductive leveraging can be, I’ll end by putting the following question in front of you:
“Would you elect to pick your friends and/or a spouse through results of an online auction—the nth degree of a leverage strategy?”
If not, why would you think that leverage should be applied to suppliers that you need to have a close, long-term working relationship with?
Paul Ericksen is IndustryWeek’s supply chain advisor. He has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers.
