Driving a Winning Culture? – Don’t Forget Your Suppliers

January 20, 2011

Often, when companies talk about “cultural change”, they are referring to changes in the internal culture of their own enterprise; i.e. empowering its employees to make decisions related to problem solving and process improvement, using the formal system in place of its informal systems, or an un-relenting commitment to quality. But what about the external culture?

Your supply chain is an integral part of your operation. It does little good to change internal culture if you don’t address your external culture at the same time. In the end, you are only as successful as your suppliers are. In the pursuit of continuous improvement, you must therefore, bring your suppliers along with you when implementing cultural change.

Changing external culture is far more complex and more challenging than changing internal culture. We have no control over what our suppliers do or how they choose to conduct business. Like us, they not only have to operate under their own cultural norms, and operating policies, but they have to deal with the norms and policies of their stakeholders; (ie. customers, stockholders, suppliers, employees, unions, etc.) Although we cannot dictate to our suppliers how to conduct their business, we must identify and address how their internal and external cultural issues impact our performance.

To illustrate this point:

Many companies are willing to put up with poor performance from key suppliers, even though it affects their own performance with their customers. They rationalize that it is okay to accept mediocre quality for a low price, or poor delivery for “pretty good” quality, or good delivery for a higher price. We often hear arguments like: “We have been doing business with them for 45 years”. “They are the only supplier in town”. “They are the lowest cost supplier.” “It would cost too much to develop another supplier.” “We need their product.” “We can’t take the risk of changing suppliers now.” or the best of all, “There is no guarantee that another supplier would be any better, so why change now?”

The problem identified in this scenario, is that these companies have not established a basis for operating with their suppliers. And, in the traditional “arms length” contractual supply relationship, there is little incentive to do so. Each company is an entity in the supply chain, operating independently for its own gain, sometimes even at the expense of its customers. In a true “supply chain environment”, the entities operate for the mutual benefit and success of their customers and stakeholders. Successful supplier relationships are built on a foundation of trust, honesty, mutual benefit and risk, and open communications. Without this foundation, it is a “partnership” in name only.

So, how do you transform “arms length suppliers” into partners? Start by opening up a line of communication with them. Select your top 10 or 15 suppliers and set up meetings with them, preferably on their ground or, if travel is an issue, schedule a web conference. Initiate a discussion of the mutual risks and benefits of the relationship. These meetings should include representatives from top management, sales and purchasing management, quality, and operations management from both companies. The purpose for these meetings is to “get things out on the table”. Following is a list of things to discuss at the meeting:

Define the critical goals and objectives of each company. Try and find a common meeting ground for performance that satisfies these objectives.

Identify issues that get in the way of trust, honesty, and communication between the two companies. Deal honestly with the key performance factors like, Delivery, Quality, Price, Flexibility, and Service.

  1. Define what needs to change in order to improve the relationship. Address external as well as internal cultural/environmental issues that affect the performance of both companies. The list might include corporate/stockholder constraints, supply chain limitations, etc.
  2. Based on these discussions, determine if it possible to resolve these issues to the mutual benefit of both parties. If not, be honest and mutually agree to move on in your own separate ways.
  3. If there is agreement to move on together, then lay down some ground rules for performance and establish formal intercompany relationships and management support for the people who have to “make it happen” every day.
  4. And finally, develop realistic objective performance measurements for both sides. Review them frequently and take the necessary actions to resolve issues that get in the way of “world class” excellence for both companies.

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