Supplier Engagement

Most successful companies acknowledge the importance of their suppliers in their achievement.  This could be driving innovation, running operations, improving efficiency among other things.  If this is true, then it’s essential to have supplier engagement that delivers business results.

We have observed that most supplier management programs don’t get enough attention or designed to drive business results.  For instance, when Dell computer began, it collaborated with suppliers to quickly bring innovation to market.  However, with time, Dell changed its focus to be cost efficient and dropped its focus on bringing innovation to market. It pressured suppliers to reduce prices. This along with other steps led Dell to lose its edge over time, as suppliers started to take their invention elsewhere.  Dell’s products were no longer cutting edge, and Dell lost its image of being cool. You wonder what motived the change in supplier engagement since hi-tech products sell because they are cool and not because they are cheap. Apple continues to command a substantial premium in the market because of their focus on innovation.

Did Dell providers meet quality, timeliness, and other tactical metrics? I am confident that they did. Then what went wrong? Well, at a fundamental level, these steps don’t connect to business goals.  These measures offer assurance to procurement and manufacturing organizations that suppliers can run their delivery procedure well.  But they are inadequate to measure whether suppliers are driving overall company success.

Most firms have rolled out supplier relationship management programs with their key suppliers.  My biggest gripe against current programs is that they are tactically focused and are grossly insufficient in helping companies achieve their business objectives.  Some of those critical problems with these programs are:

  1. Lack of Partnership: For most American companies, the relationship with suppliers is somewhat adversarial. Providers are supposed to give service whereas the firms are clients who pay for them.  There’s a mindset that suppliers are subservient to the needs of their corporation.  They lack a partnership approach and a collective focus collectively on the same goal. Imagine having a similar relationship with your significant other, how long will that relationship last.
  2. Insufficient expectation setting: Most businesses lack a good way of setting expectations with providers. The idea of Service Level Agreements (SLAs) is not widely used.  When SLAs are used, they do not tie back to the business goals, i.e., they concentrate on jobs performed by supplier instead of business objectives a business is interested in attaining.  For example, most Janitorial contracts have SLAs that specify the frequency of cleaning and not the way the customer perceives cleanliness.  If a Janitorial company cleans at a rate agreed in the However it doesn’t achieve the cleanliness as perceived by customers, then SLAs aren’t linking back to the objective of cleanliness.
  3. Emphasis on price vs. service: In companies where supplier relationship management programs are employed, we found overwhelming focus is on price and not on service. It seems the role played by business organizations in setting up these programs is minimal, mainly being driven by procurement organizations.  It may be easy to measure price, but it doesn’t assure that suppliers are providing the right service as desired by the business organizations.   There is a need to review the supplier metrics to ensure providers are focused on the right areas.
  4. Limited supplier feedback and communication: Generally, most discussions with suppliers concentrate on providing them with feedback on their performance and the areas they can improve. We all know companies can also do things at their end that can help improve the overall outcomes.  To our surprise, many managers who take part in the supplier discussions don’t knowingly ask suppliers for feedback and providers are hesitant to provide the information for fear of alienating clients.  It’s a missed opportunity for cooperation and partnership that might be readily exploited.
  5. Emphasis on punishment vs. incentive: It’s well known that positive enforcement works better than negative enforcement. Ask anyone who needed to help steer their kids in the right direction.  So, why then do we see that most supplier contracts only contain penalties for non-performance and no incentives for doing above and beyond expectations?  It appears the overwhelming view among procurement teams is that providers are incented for performance when a company provides them with additional business. This may be true. However, behavioral scientists will tell you that direct incentives work better than indirect incentives. The incentives and penalties do not have to be material, but a token something always aids in recognizing supplier efforts at a regular frequency.

What needs to change to create supplier engagement strong?   

A partnership approach. It starts with accepting the fact that suppliers bring value to the table. This is the reason why companies employ them in the first place. They are capable of providing excellent results in their particular area of expertise.  The aim of supplier engagement should be to enable suppliers to perform and hold them accountable but not to micromanage.

Below are steps we found useful in holding suppliers accountable.

  1. Clearly defined business aims: It is essential to think beyond the product or service a supplier is providing and understand the underlying business goals to get much better value from supplier engagement. For instance, one of our financial services customers offers free bus service to its employees to transfer them from New York to their offices in Connecticut.  The business goal, in this situation, is more than merely providing safe transportation to the employee. The company wants its employees to be productive while traveling, a trip that requires an hour or two each way.  A transportation provider will need to have the ability to address these high-level needs in addition to supplying safe bus rides.
  2. Tie SLAs / KPIs to company goals: There’s usually confusion between Service Level Agreements (SLAs) and Key Performance Indicators (KPIs). For instance: to provide excellent transportation service to the financial services client, an SLA for the transportation provider is going to be drivers that are exceptional in customer service along with the safe driving record.  Drivers are the first and last person to interact with employees daily.  To measure how well transportation provider is doing in this respect, KPIs might incorporate worker feedback on driver behavior, how well they kept the employees informed during the drive, their helpfulness and others. These metrics will be in addition to driver’s driving and accident records.
  3. Provide both incentives and penalties: Link penalties and incentive to the KPIs upper and lower limits. Providing small financial benefits/pain guarantees focus from the leadership of both companies on these metrics. But it is critical that these penalties and incentives aren’t material since there’s a risk of diverting supplier attention away from the job at hand.  Also, I like to provide incentives to softer measure like customer support/feedback and penalties to hard measures (such as timeliness, quality,) which are in supplier’s control.  For example: In Pharma, particulate contamination (microscopic dirt) is now becoming a real problem for medical devices companies.  This type of contamination is hard to control.  In a situation like this, Pharma companies can consider providing incentives for medical devices firms to decrease particulate contamination (not completely under their control) whereas penalties around product performance / dimensional accuracy, etc.
  4. Use fact/data for performance measurement: Opinions are easy to get whereas facts are difficult to collect. An engagement works better if it’s based on facts and data rather than swayed by subjective perceptions. Facts/data enable providers to concentrate on tasks and having productive discussions without emotions. I occasionally get pushback for focus on facts as managers believe not everything could be captured with data. This could be accurate, nevertheless, developing the right KPIs will help in devising proper methods for information capture. The facts could be collected via surveys, feedback on performance from key It helps to be transparent with providers on when and how data will be captured so there’s no concern on how their performance will be measured.
  5. Be open to two-way feedback: Though the focus of the supplier engagement is to ensure supplier is providing the agreed level of support, it always helps to be open to feedback from providers. I’ve received outstanding ideas from suppliers on improvements. Missing out on chances to acquire supplier feedback is plain unwise.
  6. Establish regular cadence: Establishing a regular cadence to measure and communicate supplier performance is good. This avoids surprises and allows for the timely repairing of any difficulties.  The most significant advantage is that providers realize that somebody is reviewing their performance and publishing it to stakeholders.  This is the best way to hold suppliers and internal organizations accountable.

Most supplier engagement/relationship management programs are tactical and punitive in nature and don’t assist in building a long-term relationship with suppliers.  Thoughtful design will allow companies to drive better business results with help from suppliers.

About Author:

Bob Johansen
Distinguished Fellow / Institute for the Future

There’s no use building a bridge if your customers don’t want to go there. This book shows you new ways to prioritize your customers. How can you use engage with changing customer needs—not just push old products at new needs? How can you win by helping your customers win?

Milind Yedkar
General Manager, Asia Pacific & Japan, Cloud Client Computing / Dell

Suman Sarkar’s ‘Customer Driven Disruption’ is not just another book preaching customer focus to business executives. Rather than restrict himself to homilies, Suman lays down five strategies that can help bring the ‘C’ into business planning. He illustrates each strategy with a rationale backed by numbers and specific steps to bring it to life with examples from across industries. The book ends with a set of guiding questions that can be used by thoughtful executives either by themselves or in a team setting to develop an action plan for their organizations.

Praveen Madan

This book disrupts disruption! It redefines what causes disruption and what you can do about it. It accomplishes this with an elegant paradigm shift that’s profound and yet simple. Suman’s conclusions are based on powerful insights from research, case studies of leading companies, and decades of business experience. You will never think of disruption in the same way again.

Crystal Kadakia
Founder & Principal Consultant / Invati Consulting

Suman Sarkar redirects the focus back to what made your business a business: it's customers. With many case studies and concise takeaways, this book is a handy guide to shaking up your innovation strategy.

Jeanne Bliss
President / CustomerBliss

Suman Sarkar is a strategist after my heart—like me, he believes that real change and innovation come from customers’ actual needs and wants, not from researchers in lab coats. Customers WILL tell you how to make your business thrive and win the future--if you learn how to listen. This book explains how to open your ears.

John A. Goodman

Sarkar puts forth new, actionable definitions of customer focus, personalization, and quality along with a roadmap that your team can use think creatively and be more willing to take intelligent risks.

Renee Evenson
Author of nine books

This is an excellent, thought-provoking book that offers clear strategies enabling you to understand buying patterns and generational expectations. Customer-Driven Disruption will inspire you to effectively plan for and stay ahead of your competition by focusing on your customers and what they want.

Steve Curtin
Author of Delight Your Customers / Steve Curtin, LLC

In Customer Driven Disruption, Sarkar shows that technology isn’t the real driver of disruption, and he unveils many more surprises that will challenge your assumptions and prepare you and your organization to stay ahead.

Henrik Thorén
Vice President, Group Sourcing North East Asia / Ericsson

The book is very inspirational for anyone working with Sourcing and Supply Chain. Sourcing and Supply Chain is not always a top priority in many companies, but this book shows some really good examples of how this can make or break a company. There are also some very good concrete examples of what and how to do which inspires you to challenge your own thinking.

Henrik Thorén
Vice President, Group Sourcing North East Asia / Ericsson

The book is very inspirational for anyone working with Sourcing and Supply Chain.

Dr. Christopher Burke
Dept of Information, Risk, and Operations Management / McCombs School of Business, The University of Texas at Austin

Excellent book. Well developed and hitting some excellent new and futile SC topics.

Suman Sarkar

Suman’s mission is to help clients achieve a competitive edge in the marketplace. With more than 20 years of international consulting experience, Suman has a proven track record delivering an innovative and strategic approach with outstanding results.

Martin Christopher
Emeritus Professor of Marketing & Logistics / Cranfield School of Management, UK

Successful companies in every industrial sector have long recognized that competitive advantage comes not just from the products or services that they offer but from the supply chains that support them.  In this easy-to-read and insightful book, the author explores the opportunities that exist for improving profitability through supply chain excellence and provides practical guidance on how to achieve the goal.

P. Venkatram
Vice President, APAC Planning and Logistics Head / LEGO

This book is indeed thought-provoking for supply chain practitioners as well as for business leaders. Suman Sarkar’s guided multi-step approach focuses on simplification without ignoring business complexity. It will help companies reform their supply chains to enable a healthier business.

David Dreyfus
Assistant Professor, Department of Supply Chain Management / Rutgers Business School

As someone who teaches supply chain management, I was very interested in this book. Overall, I enjoyed the book. It was a good, quick read that offers advice, wisdom, examples that you can import into your own business or job. Suman describes in detail some of the great projects he has gotten to be a part of during his career. The book offers a lot of great advice, which could help you and/or your organization avoids some mistakes. The book leans towards the marketing side of the business a bit. I like that there are actionable ideas presented.

Atul Tripathi
Senior Director, Global Value Innovation / Pepsico

The Supply Chain Revolution is a brilliant, clear, and simple guide for corporate executives who want to transform their supply chain. I have never seen such a clear and actionable plan for taking supply chain management to the next level. Supply chains have become more complex in the last three decades as a result of globalization, the increasing pace of innovation, and competitive intensity. Suman Sarkar explains how best-in-class companies debottleneck their supply chains by drawing from his own experience transforming supply chains both from inside a company and from outside as a consultant.

Raj Kamalapur
Assistant Professor, Department of Management and Marketing / College of Business, Angelo State University

This book has done an excellent job in explaining many important areas of supply chain like customer segmentation, customer service, demand planning, alliance management, inventory management, streamlining supply chain, fixing bottlenecks in supply chain, managing store investment, enhancing marketing efficiency, facilities outsourcing, sourcing excellence, supplier selection, relationship management and many other areas. One area that could have received more attention in this book is in the area of logistics. Overall this is an excellent book to read and enhance your knowledge in the area of supply chain and sourcing.

Xianghui (Richard) Peng
Assistant Professor of Operations Management / Eastern Washington University

The Supply Chain Revolution identifies and explains many supply chain challenges that frustrate executives most. It delivers corresponding practice-proofed approaches to respond the challenges. The fruitful hands-on industry practices throughout the book provide significant value for organizations to transform their supply chain. This book is a great resource for executives and senior supply chain professionals to use for self-learning or training, and for MBA students with a concentration in supply chain management to complementarily use in class.

Satish Jain
Director, Supply Chain optimization / Scotts Miracle-Gro Company

Suman Sarkar does a great job in explaining the practical solutions to common supply chain problems. He delivers an engaging balance between strategic perspectives and operational issues that make for an interesting read.

Yogesh Gupta
Vice President Global Operations / Cargill Business Services

Suman Sarkar does an excellent job of demystifying supply chain concepts and presents a logical framework to unlock tremendous value across the organization value chain. The fact that Sarkar has been a “hands-on” practitioner himself allows him to showcase solutions that will resonate well with supply chain managers /leaders across the industry spectrum. Well done, Suman . . . . eagerly awaiting future insights.

Mary Anne Gale
Retired VP of Supply Chain / Procter & Gamble

A wonderful book for supply chain and business leaders. He has presented examples that tell the story of the fundamentals in a memorable way.  It demonstrates the value of supply chain in delivering bursts results.  I highly recommend him to anyone leading a supply chain.

Ramesh Krish
VP Supply Chain and Head of Procurement / Presbyterian Healthcare Services

The Supply Chain Revolution provides a lucid commentary of some of the most basic supply chain challenges frustrating senior management across different industries. Adopting a methodical approach to inventory tracking, product fulfillment, and channel distribution will help yield significant value in cash flow and reduce inventory obsolescence costs.

Ramesh Krish
VP Supply Chain and Head of Procurement / Presbyterian Healthcare Services

The Supply Chain Revolution provides a lucid commentary on some of the most basic supply chain challenges...

David Dreyfus
Assistant Professor, Department of Supply Chain Management / Rutgers Business School

The book was a good, quick read that offers advice, wisdom, examples that you can import into your own business or job. 

Yogesh Gupta
Vice President Global Operations / Cargill Business Services

Suman Sarkar does an excellent job of demystifying supply chain concepts...

Mary Anne Gale
Retired VP of Supply Chain / Procter & Gamble

A wonderful book for supply chain and business leaders

P. Venkatram
Vice President, APAC Planning and Logistics Head / LEGO

Thought-provoking book for supply chain practitioners as well as business leaders.

Richard Connelly
Former Budget leader, Energy Director / Defense Logistics Agency (Department of Defense, USA)

The Ideal Supply Chain Primer for the Time-Pressed CEO or Gov­ernment Executive

Atul Tripathi
Senior Director, Global Value Innovation / Pepsico

Brilliant, Clear and Simple Explanation of Supply Chain Transformation

Richard Connelly
Former Budget leader, Energy Director / Defense Logistics Agency (Department of Defense, USA)

The Ideal Supply Chain Primer for the Time-Pressed CEO or Gov­ernment Executive In clear, concise language Suman Sakar de-mystifies the complexities of supply chain management. The key to his process is simplification. In a world of business books full of buzz words and unnecessary complications, this is a refreshing approach. Sakar breaks supply chain management into its component pieces and succinctly lays out the relationships. If you are getting foggy, conflicting advice from staff and suppliers, as I frequently did in a career managing large organizations, you will find this short read welcome clarification.

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