For twenty years I’ve preached the simple but powerful idea of sourcing with respect. In terms of supply chain strategy, this means working from the premise that suppliers are business partners. You are likely to work with them repeatedly, be dependent on them for your success and owe them not only payment, but also respect.
Jamaicans clearly understand this.
The Snowball Effect
Having just returned from a short visit to Jamaica, I am struck by how deeply the concept of respect runs in characterizing healthy, sustainable and profitable partnerships. The ubiquitous single word “respect” is appended at the closure of transactions between tourists (like me) and shopkeepers, wait staff and anyone else selling services. It feels like a friendly honorific and a sort of surrogate for “thank you”, but it means much more.
It implies recognition of the island nation’s roots in slave rebellion, but also the importance of tourism as an economic engine now and for the future. It demands awareness both of the work done and the fulfillment enjoyed. Most of all, it captures the moment when customer and supplier recognize their mutual dependence, face to face, and invest in the relationship going forward.
The Tao of Pooh, which is a sort of philosophy manual for going with the flow of things, offers a perspective on what it calls the Snowball Effect and the role of respect: “…the principle can work negatively or positively. It can promote cynicism as easily as it can encourage hope. The important thing is to make it work for yourself and for the benefit of others… Working with [the Snowball Effect], you use respect to build Respect.”
In other words, respect is the starting point of a virtuous circle in which customers and suppliers make each other successful.
Customer of Choice
I was in a meeting of some top hi-tech executives once when the “customer of choice” concept came up. One especially powerful person in the room quickly derided the idea as wasteful and soft. Ironically, the company had brought me in specifically to discuss how they could better collaborate with their customer who was beating them up on price and ignoring efforts to synchronize operations for mutual gain. The obvious missing ingredient in this value chain was mutual respect.
SCM World’s Geraint John has researched this topic deeply and crystallized a set of ten behaviors that can turn combative, antagonistic purchasing dynamics into collaborative partnerships that benefit both supplier and customer. The common thread across all ten behaviors is an expectation of co-dependency over time. This requires respect of the supplier’s need for information and cooperation, as well as its margins.
The business benefits can be seen in higher OEE (Operational Equipment Efficiency) and asset utilization, faster time to market for new products and packages, and lower sourcing costs achieved by Carlsberg in its partnership with bottling equipment supplier, KHS. They can be seen in capacity timing and availability, component costs and technology development expenses for Lenovo in its partnership with Intel. They can be seen in on-shelf availability for promotional items, logistics expenses and inventory carrying costs for Kroger, in its partnership with General Mills.
The penalties for failing to show respect can be seen in punitive pricing for disk drives to certain customers after the Thailand floods a few years back. They can be seen in resistance to development of automation technology among equipment suppliers still stuck selling one machine at a time. They can be seen in the gutting of tier-1 suppliers in the US auto industry in the 1990s. They ultimately include the darkest nastiness of conflict minerals, sweatshops and degradation of ecosystems.
What Goes Around Comes Around
Sourcing without respect is understandable. It is the residual habit of an industrial model that was designed to extract, convert and deliver stuff – always moving ahead, often making a mess, and generally treating suppliers as cost centers.
Tough guy purchasing tactics are fading as strategists learn to model the fully connected network of dependencies in our supply chains. Also fading are exploitative labor and environmental practices that pay in the short term but cost long term.
It all starts with respect.