There is a growing need for strategic partnerships between buyers and suppliers in an environment of high supply uncertainty and supply chain disruptions. In this way, the partners in the chain can better help each other, share their knowledge and improve products and services.
Companies are increasingly dependent on suppliers. This makes cooperation between purchasing departments and suppliers even more important. Strategic Partnership: Cooperation between buyer and supplier can provide added value to both partners.
“It has been scientifically proven that good cooperation and partnership, and therefore trust in each other, lead to higher quality and lower costs,” says Johannes Heemstra. He is a Senior Buyer at HIS (Rijksoverheid Purchasing Organization) and specializes in cooperation between buyers and suppliers. “Because there is trust, fewer checks are needed, for example, and this is more efficient. In addition, job satisfaction increases. For example, Leslie Willcocks, from the London School of Economics, has shown that trust-based contracts Cost savings of 40% more than energy-based contracts.” According to Hiemstra, partnership is a flexible concept. “It depends on the parties involved, the type of purchase and the purpose of the cooperation.”
Hiemstra adds that in a good partnership, the elements of partnership coincide. The purpose of the business relationship, performance management, scope formulation, pricing model, and governance model must be well interconnected. Often this is not the case, and as a result problems arise due to differing interests and expectations.”
Partnership must be based on mutual trust. Only then is an equal relationship possible with partners who are equally dependent on each other. Mutual trust also includes the willingness to invest together by purchase and supplier. It is also important that purchasing gives suppliers the freedom to decide how to satisfy the purchasing organization’s desires. Hemstra: “The basic attitude of trust is essential that the other person act in good faith. This depends on the people involved and requires ‘enlightened’ leadership on both sides. You have to dare to be weak. In addition, it is essential that the partnership be well organized. It must That support the purchase and contract (creation) partnership process.”
According to him, this is possible through a formal relational contract. “This is a contract based on social (relational) norms and generally defined goals. Priority is given to the organization of the relationship with the constant coordination of interests, so that full relations are realized. An example of a relational contract is waste collection at Wageningen University & Research (WUR). In a new tender, WUR decided not only to pay for waste collection, but to allocate a fixed budget to manage the entire flow of materials. If the waste collector collects less waste, he will not be paid less, but the remaining money will be used for innovation and investment within the framework of cooperation between the purchasing party (WUR) and the supplier (waste collector).
Rewarding enough risk
According to Hiemstra, the best way to establish a partnership depends on what the client company (the internal customer) wants to achieve. “Look at strategic impact, value creation potential, and resource dependency. The more important these aspects are, the more intense the collaboration. This applies to the collaborative relationship, but also to the contract pricing model. The collaborative relationship can range from identical organizations (medium cooperation Intensity, the partners have the same structure, so that cooperation can work smoothly and complementary) to joint virtual organizations (very intensive cooperation). Regarding the pricing model: the more intensive the cooperation, the higher the financial risk for both parties and not only for the customer. The risk and reward should be Always in balance. If the stakes are greater for suppliers, you should reward them better. This is still bad. Beautiful words alone are not enough. It is about equal interests. This also ensures that the supplier team works for you and that you get better results.”
Partnership and supplier management
The basis of a good supplier partnership is supplier management. These are all activities aimed at building a healthy supplier base and further developing the collaborative relationship with suppliers. Hiemstra emphasizes the difference between partnering and managing a supplier. “Partnership within a contract. An example of a partnership is the collapsing sidewalk walls in Amsterdam. The municipality did not have enough budget to accommodate this. In collaboration with suppliers, an innovative approach has been developed with a new method of maintenance within budget. This requires extensive collaboration within the project. It is related to supplier management interrelationship and extending across projects. It is relationship management.”
For a partnership, you need to identify the important suppliers to work closely with. Interdependence plays a role in this and whether the goals of the two companies match well with each other. ESG buyers should also take a critical look at how the supplier and the partners it works with. In addition, the cooperation budget and the maturity of the organization also play a role. They must be able to work well with suppliers.
“As customers, you can partner with an existing supplier based on that supplier’s track record and on the agreement of both parties,” explains Hiemstra. “When looking for a new supplier, look at experience, vision, and culture. Determine if the supplier can deliver the right expertise and performance, determine if you have a shared vision of what the customer’s business wants to achieve, and determine if there is a “matching DNA” at both ends. “
Partnering with multiple suppliers can provide additional added value. Hiemstra: “Cooperating with several suppliers at the same time again depends on the purpose of the business relationship with the suppliers. A good example is McDonald’s chicken meat suppliers. Every day McDonald’s feeds about 65 million people around the world and is the largest buyer of chicken meat in the world All suppliers of this product work together and share innovations with each other. They do so because, with McDonald’s, they have a common interest in serving as many customers as possible. And then it doesn’t make sense to compete with each other.”
Another example is chain cooperation contracting. “As a customer, you then ask the parties to present themselves as a chain. When choosing a supplier, you also consider how well the chain works together, and the results it can deliver. One example in healthcare is the Better Together Birth Care Improvement Program at Santeon Hospitals. The entire chain: from primary midwives and maternity nurses, via obstetricians and gynecologists, to selected experts in academic hospitals, working together there to raise the standard of obstetric care to a higher standard across the board.”
According to Hiemstra, cooperation is successful if the business (the internal customer) has clearly achieved the results or outcomes for which it was intended. “In the case of the Amsterdam Pier Walls project, this, for example, is the development of a maintenance method in which the pier walls in the center of Amsterdam can be maintained reliably and within budget.”
It is definitely worth investing in good partnerships with your suppliers as a buying agent. It can bring a lot to your company and supplier, from financial benefits to new knowledge and innovation.