1 Supplier Relationship Management vs. Customer Relationship Management - Collaboration from a Supply Management Point of View Lorrie K. Mitchell, C.P.M., A.P.P., Partner Mitchell Enterprises, Duluth, GA 30096, , Abstract. The structure of the partnerships you develop with not only your suppliers but also your customers will in many cases determine the degree of success of the relationship. A successful partnership provides an opportunity for shared risk while maximizing the opportunity for mutual success whether it s with your supplier or customer. In order for this to take place, the Supply Management (SM) professional, the supplier, and the customer must commit to a working partnership of collaboration with their supplier and customer where relationship identification, development, and management are the key elements. The goal of SM is to facilitate the selection of the supplier who can best meet the customer s needs and then at the fairest negotiated price. Today, equally as important is selecting a supplier who is willing to build a mutually beneficial relationship with their customer. Optimally, this is a supplier who is willing to share some risk in addition to the success. The SM professional needs to take the lead in the collaboration of this 3-way relationship right from the start in order to reap maximum success. Selecting the right supplier is important, but educating and tooling a cross-functional team with effective techniques is equally as important. Communication and trust between the SM professional and supplier and buy-in and participation from the customer must be achieved from the onset. Customer Relationship Management. Customer Relationship Management is far more than any software program. It is the personalized relationship that you the SM Professional develops with your customer so that they will be successful in their relationship with the selected supplier(s). Unless you achieve their buy-in from the beginning, your partnership with your customer and ultimately the partnership that will be developed between them and the selected supplier(s) will be compromised. The Customer Guidelines technique is one tool that will systematically take the customer (and the supplier to a degree) through the SM process where one outcome is the Performance Based Contract (PBC). Customer Guidelines is a customer relationship management tool that forces SM professionals to really talk to their customer and encourages the customer to become involved in their business. The customer becomes aware of the importance of developing a strong mutually beneficial arrangement where all parties have something to gain and something to lose if their partner - even if that partner is the supplier - is having a problem. All parties now realize this win/win approach is necessary to achieve and maintain a competitive advantage in today s marketplace. Communicate with and educate your customer and then move on to your suppliers. Don t wait for your customers to come to you. Rather, proactively look for forums among your customers to educate and communicate your value-added services to them. Work with your customer to ensure their buy-in of the SM process and methodology. Let your customer make some decisions by providing probing questions to facilitate the right decision. Your customer is your expert. Meet with them regularly and look for ways to say yes to their requests. Get to know
2 their needs while providing information relating to the procurement process and ultimately making the correct supplier decision. When you finish a conversation with a customer, they should walk away saying This was a pleasant and happy experience! SM can help me. They really want to help, and they understand my needs! Our ultimate goal is to make our customer successful. Develop Personalized Customer Guidelines. In order to manage your customer relationship, you need tools. Your Customer Guidelines is a document you can share with your customer that will set their expectations and identify deliverables - deliverables they ll be providing to you. If your goal is to select the right supplier, you, as the SM professional, have got to be able to: 1. Identify what your customer is looking for, 2. Determine which suppliers have the product/capabilities they need, 3. Negotiate a fair and reasonable price, and 4. Identify, develop, and maximize the relationship, i.e., Supplier Relationship Management. How do you do this? What documents do you need to develop and focus on? They are the: 1. Specifications/capabilities document, 2. Supplier technical/capabilities questions, 3. Economic analysis, and 4. Performance Based Contract (PBC). Identify Your Customer s Needs. Everything you need will flow from your Customer Guidelines. Communicate your game plan to your customer. Let them know the activities and information they will be responsible for providing. Remember, no one likes surprises. You ll be acting as a team from this point forward, so you may as well have everyone s buy-in up front. If they understand the process and how important their input is to the process, they are sure to be a willing partner. Clearly, your customer is the Subject Matter Expert, and your goal is to get every bit of pertinent data they possess documented and to the appropriate suppliers. If used to its potential, your Customer Guidelines should be a one-stop shopping tool you may use to educate and guide your customer through any project. They will know the deliverables from the beginning of the project and who will be responsible for providing them. Who are the right players, i.e., the ones with the expertise to form the Technical Selection Team (TST)? This is the cross-functional team of subject matter experts. Once these players are identified, jointly develop a doable project timeline. Use the Customer Guidelines once you ve gotten buy-in on all activities. Now you re positioned to set associated dates. Assist your customer in the development of their specifications/capabilities document. What is the scope of the work to be done? Identify any applicable documents that should be included. There are other requirements for instance, if it s a service. Will it be provided on-site or offsite? What systems will be interfaced with? Lastly, progress reports describing how the supplier is doing are usually needed. Additionally, if you share your project timeline with your suppliers you ll be surprised at the cooperation you ll receive. Remember, no surprises!!
3 Determine Which Suppliers Have The Necessary Product/Capabilities. Now you ve educated your customer with how to describe the product/service they are looking for in a manner that describes the outcome. It s time to develop the second, if not the most important, document in selecting the perfect supplier. That is the supplier technical/ capabilities questions. It s one thing to describe the deliverables you re looking for, and it s another to determine which supplier(s) can provide it to you. The reason these questions are so important is that without their answers you and your customer have NO way of knowing if a supplier understood what you were looking for and if they indeed have the capability to provide it. No wonder so many suppliers are selected solely on the basis of price!! It s like going to school, attending the lectures and reading the prescribed books. But can you answer the associated questions?? Now, THAT will tell the tale!! The only way to determine what the suppliers can do is by asking the suppliers three (3) types of open-ended questions. First, your customer needs to identify general questions to determine supplier capabilities, size, past business experience, etc. Secondly, specific questions addressing the product/service outcome need to be documented. Thirdly, ask supplier relationship based questions to find out exactly how willing these suppliers are to share risk along with success. Ask them ways they suggest to accomplish this. Ask them where and with whom they have done this before. Do they currently have any Performance Based relationships? Negotiate A Fair And Reasonable Price. When you meet with the TST to review the technical responses, let them know the game plan. Explain to the team that while they are evaluating the technical/capabilities responses, you will be analyzing the economics. And do just that!! Start with a summary, i.e., comparison of prices, but be sure to follow-up with a total cost of ownership comparison. Your customer wants and needs to know exactly how this will affect their budget - capital and expense. You don t want them to think you are holding any information back. Let them know that you want them to be able to determine which supplier(s) will fit their needs without the burden of second guessing price, i.e., this sounds like what we need, but their fees are too high. It s up to you, the SM professional, to negotiate the price once the subgroup of supplier finalists is selected. Explain to them that when they complete the technical evaluation and a subgroup is selected, you will be providing an analysis on the supplier pricing for discussion with the TST. Again, pricing is more than first cost. Yes, you must do an apples to apples comparison, but you also need to take it several steps further. Your customer wants to see more than a summary. They want to know the capital and expense dollars associated with their project, and more specifically, they want to know their Total Cost of Ownership. Supplier Relationship Management. To maintain the momentum, your next step is to determine which supplier(s) would be interested in sharing risk and success with you and your customer. The development of the SM professional/supplier relationship and the establishment of a Performance Based Contract (PBC) will ensure a successful working relationship with the selected supplier. This is simply not only a tool, but also a good business approach to successfully working with a supplier. PBCs help suppliers to understand the organization s business goals. In this world of win/win negotiations and contracts, all SM professionals are interested in working with a supplier that REALLY wants to work with them, i.e., establish a true give and take relationship.
4 A PBC is the necessary tool to foster a long-term relationship with the supplier, whereby both the SM professional and supplier focus on their long-range financial and value-added benefits. In the past, contracts were negotiated solely with a set fee structure. Occasionally, a penalty clause would be negotiated into the arrangement, and less seldom an incentive clause was included. A PBC is the true win/win scenario of the perfect union of these concepts. Is a PBC beneficial? SM professionals are demanding high quality, innovation, and excellent service at fair and reasonable prices. Quality suppliers want to provide the best product/ service and they expect to be rewarded for exceeding expectations. A PBC provides an opportunity for shared risk while maximizing the opportunity for mutual success. What type of relationship should exist/be developed with the supplier? A PBC IS about developing a strong mutually beneficial arrangement where both parties have something to gain and something to lose if their partner is experiencing a problem. Correct problems as quickly as possible and work with your supplier with input from your customer to find the root causes. Explain the difficulties involved in satisfying requests and discuss alternatives to keep costs controlled. Be cooperative in establishing timetables for meetings, deliveries, and telephone calls. Explore the cost factors involved on both sides of the relationship and work to save for both you and the supplier. Do not jump in to affix blame; be open to listen to the other party s side and be ready to suggest solutions. What type of environment is conducive to making this type of relationship work? Is there a strong communication and sharing of information between the supplier and SM professional? Between the supplier and the customer? A good specifications/capabilities document is vital. Communication and buy-in of the customer is critical since ultimately, they will be implementing the PBC. Both parties need to know that the other will go beyond the agreed upon terms and conditions to make this a successful and profitable relationship. What do you base performance on? The identification and establishment of performance indicators and the associated outcome criteria are a must. Although performance measurements will vary depending on the product/service, customer satisfaction, product/ service quality, support process performance, end-user satisfaction, efficiency, supplier performance, and/or measurement methods, each relationship needs to determine exactly what will it will take to make it a success. Additionally, if you re still wondering what to measure, then listen to what the suppliers promise. When they tell you they have great customer service, ask them how they measure it. Conclusions. Customer Relationship Management is important because today s customer wants and needs to be part of the interaction. They want to be knowledgeable in the development of this 3-way relationship with the SM professional and the supplier. At no time, should one party be pitted against the other. The benefits resulting from this collaborative relationship are endless and powerful especially with the use of the proper tools. Supplier Relationship Management is especially critical today as organizations concentrate on core competencies and rely more on suppliers help to maintain a competitive advantage. To manage suppliers effectively, especially in a SM environment, SM professionals need to understand the full impact of what cooperative efforts can yield. Focus on the benefits to the
5 supplier even if they don t directly benefit you. The goals of both parties should be committed to mutual benefit and gain. Both parties should be able to trust each other and have confidence in the statements and intentions voiced by the other. If at any time one side fails to support the relationship, the other won t receive the value it expected at the start of the relationship. The task of the SM professional is three-fold. They must diligently manage and nurture their customer relationship while nurturing a similar relationship with their supplier while simultaneously ensuring a successful partnership between their customer and the supplier. The Customer Guidelines and the Performance Based Contract are two tools to accomplish, monitor and measure these relationships. Successful use of these tools creates win/win opportunities and REAL partnerships for the SM professional, the customer, and the supplier. Further, these tools assist in focusing on the long-range financial and value-added benefits of the relationship and how negotiations and relationship building play into this scenario. Author. Lorrie K. Mitchell, C.P.M., A.P.P., is a Partner in Mitchell Enterprises, a consulting/training firm specializing in supply chain management, performance based contracts, and supplier relationships. Formerly as a Supplier Alignment Leader in the supply chain management department of BellSouth Telecommunications, Inc. for 18 years, Ms. Mitchell negotiated all types of product, software, services, and outsourcing agreements specializing in corporate licenses and maintenance agreements, performance based agreements, supplier relationships/alliances, and the measurement of supply chain management s financial contribution to the corporation. She has a bachelor s degree in mathematics from the University of Miami and a Master of Science in technology management from the Stetson School of Business and Economics of Mercer University. Ms. Mitchell has served as a full-time faculty member at the Keller Graduate School of Management where she taught contracting and procurement management. She has presented sessions at NAPM s last five (5) International Purchasing conferences, The Management Roundtable s International Conference on Product Development and the Supply Chain, and NAPM s Supply Chain Management Conference and appeared in several publications, including Supplier Selection & Management Report, Purchasing Management Bulletin, Electronic Components magazine, Sales & Marketing Executive Report, Purchasing Magazine, Global Logistics & Supply Chain Strategies, and Purchasing Today. She was a panelist for NAPM s September 1999 Satellite Seminar on Linking Purchasing with Customer Values, Technology, and Shareholder Value broadcast nationwide and taught several full-day seminars at the Project Management Institute s 30 th Annual Seminars & Symposium. Ms. Mitchell is 2 nd Vice President on NAPM - Georgia s Board of Officers, was recently selected to serve on the NAPM Regional Leadership Training Committee, and serves on the Editorial Advisory Board of Supplier Selection & Management Report and Purchasing Law Report. In addition, Ms. Mitchell was profiled in Purchasing Magazine, The Career Advisor, and in the book THE TITAN PRINCIPLE - The Number One Secret to Sales Success. She has authored numerous articles published in Purchasing Today, issues of Business & Industry Connection Newsmagazine, Purchasing Law Report, and authored the April 1999 issue of InfoEdge entitled Alliances: How To End An Alliance Relationship.