Supplier Management Myth Busting

We are pleased to bring you this guest post from Santosh Reddy of GEP, which lays out 5 common procurement myths.

A cat crossing someone’s path has been considered inauspicious for such a long time now that the origin to the myth is also forgotten. Today, I was in a temple for an early morning prayer and I noticed a cat walking by the people attending the prayer, even by the priests and deities. No one was bothered by its presence, particularly the priests who treated it as one more devotee. No one shooed the cat away. This goes to show that such myths have been busted and have far less impact on our lives now than before. Surprisingly, this same logic applies to many relationships. Let’s try busting a few related to supplier relationships. (Spoiler Alert: Might get slightly philosophical).

Myth 1: Suppliers are operating with a hidden motive tofleece you

When every company treats its  customer as the king, yet strives to make profit, how is the supplier at fault for doing the same? This is not a myth, it is a fact. The cause for fear and suspicion is poor supplier selection and performance review process.

If your first car is a very poor choice, you would not hate all cars, but rather evaluate another model/make. But this is possible only if you have well defined standards for what a good car is.  Similarly, setting up the process and standards to evaluate your suppliers is important. It lets you benchmark supplier’s quality and price and reset expectations or change suppliers.

So instead of finding a supplier who is not too keen on making profit, find one who meets your requirements within budgetary constraints while they are also making some profit.

Myth 2: Hide your cards until absolutely needed

In Poker, you don’t reveal your cards until the last moment. In Poker, another person’s loss is your gain.

Supplier relationships though are not a game of Poker. To a great extent, not even during negotiations. Now, I am not saying you should open and display the contents of your wallet to either your suppliers or customers. But if the supplier selection process is thorough, the value derived from the partnerships will be a lot more when the communication and information sharing between partners is open and honest. It is seen in many instances that suppliers will be your eyes and ears and help you stay abreast of market trends including risks and eventualities that may disrupt your business operations.

Myth 3: A flexible supplier is a great supplier

True under the condition that the supplier develops their services and products around your requirements only. But suppliers don’t stay captive to one customer even if they started off that way. Once they do that, their flexibility is expected to drop.

A supplier that works along with you to fulfil your company’s objectives is more valuable than one who is just flexible. The former brings in their knowledge of best practices and expertise into the relationship, while the latter might just be learning from you and doing what you want, which may not be what the company needs.

Myth 4: Having the right process and suppliers means you are set

True until some factor surfaces that changes the market dynamics. The only constants in life are change and death. Companies that have a strong culture to imbibe change and take things in their stride outperform those that grow complacent once their processes are set.

Also, however good your partners are and however strong their corporate values, the moment a partner senses the level of involvement from their counterpart dropping, they will reciprocate leading to a vicious circle.

Myth 5: Performance evaluation might risk antagonising suppliers

On the contrary, suppliers would greatly appreciate being evaluated and informed of their performance. This lets them know which areas they are performing well in and where they need to improve. On the suppliers’ part - they will be willing to make the effort to improve, to prove their commitment and sustain the relationship. This is way better than being told on one bad day that your performance was not meeting expectations and your services are no longer needed.

Bottom line: the era of superstitions is over, however new ones keep taking their place every so often. As for myths in Supplier Management -- a thorough supplier selection process supported by a robust evaluation and open, honest communication with your suppliers goes a long way in growing your business (together with that of your suppliers’) and not the other way around.

For more interesting thinking on procurement, visit the GEP Knowledge Bank

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