Tim Cummins and the value of trust in procurement relationships

I've just caught up with Tim Cummins' blog where he writes a very interesting piece about trust.  According to a report for the World Economic Forum, "levels of trust have fallen by 44% in the last 10 years".

Tim is one of the most original and thought provoking people in our eco-system.  He founded the International Association for Contract and Commercial Management (IACCM) and leads the organisation, and one of his missions in life is to bring the two 'sides' of contracts closer together.  Not in a vague, woolly 'partnership' sense, but through his belief that good performance from both the buyers and sellers perspective is about contractual obligations being delivered as they should be.

Coming back to 'trust', globalization is seen as the key factor in the decline of trust, and Tim suggests several reasons for this, such as dealing with new and unfamiliar partners more often, rather than firms we have worked with for years.  He goes on to say,

"Among the consequences of this loss of trust has been the rise of the importance of the contract and formalized contract and performance management. During these 10 years, we have witnessed a drive for more and more precision over commitments and their measurement, accompanied by a steady increase in focus on ‘penalty terms’ – or the consequences of failure. Negotiations have become dominated by the allocation of liabilities and indemnities; battles over intellectual property rights, data protection and confidentiality. All principles of ‘my word is my bond’ appear to have been abandoned in the interests of low prices and the destruction of loyalty".

But Tim concludes that this loss of trust is not inevitable;

".... it is a corporate choice whether or not to build sustainable relationships with its key customers and suppliers.  But.. we do not have the economic data to demonstrate the relative value of trusting versus untrusting trading relationships. Isn’t it time for commercial experts to explore these impacts.... ?"

Is this loss of trust what you've experienced?  How could we quantify the effect? Is Tim exaggerating how serious an issue it is? Or is it unfortunate but just an inevitable consequence of the world we live in?

I'm not sure I would base a commercial relationship with any firm on the strength of a handshake these days - but perhaps that is a shame and perhaps it does lead to cost and inefficiency in our businesses.  Anyway, read Tim's whole piece and see what you think.

First Voice

  1. Jaye Cook:

    The point from Tim is believable, and does spark the debate about the current (global) economic situation, forcing buyers to be concerned only with cost, potentially at the expense of good SRM.

    My view is that, with the benefits of supply-base rationalisation (subject to this being the correct commodity for this type of activity), having fewer key suppliers should drive more trust and partnership-based approaches, rather than perhaps the tactical buying, adversarial nature, and unit-price reduction focus of old.

    Good contract management is an essential element of a world-class procurement fuction (both in terms of sortware / tools, compliance, and relationship management) – Hopefully, the innovative CPOs among us are fully aware of the benefits of collaborative procurement, supplier selection based on balanced scorecards, and driving supplier relationship management as hard as they drive their teams to reduce unit price reduction – They’ll then see the benefits of falling total cost of acquisition, with a sustainable supply-base.

    I agree that having appropriate measurement in our contracts (and liquidated damage clauses where necessary), is good practice. I do however feel that, subject to managing the relationship with the key-supplier effectively, you’re unlikely to have to refer to the terms to frequently.

    So in summary – Fewer suppliers, treated as partners, and with open and honest sharing of information, forecasts, year-on-year targets, and regular reviews, should result in more trust, sustainable cost reduction and a mutually beneficial relationship….

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