Supplier Collaboration is Procurement’s Smartest Strategy
You can extract all the insights you want out of your spreadsheets and dashboards, but unless your suppliers agree to your pricing model, you’re not going to make any profit. Similarly, you can do all the forecasting optimization that’s possible, whether it’s through artificial intelligence or software that helps with supply chain management, but in the end it’s supply chain collaboration that will deliver competitive advantage for your sourcing team and for the entire manufacturing organization. So any investment in collaborative relationships with your suppliers will pay off. This is the lesson that was imparted to meet by Don Stamets, who I ran into at aPriori’s most recent Manufacturing Insights conference. From his long career in both product development and commodities management, Don Stamets has a lot of experience managing supplier relationships. He has got a clear vision on how to use metrics to improve his relationships with strategic suppliers, and the collaboration efforts that he’s implementing demonstrate that it’s possible to lower cost and ward against supply chain disruptions through initiatives that improve supplier collaboration.
In this conversation, we start off by defining the difference between “does cost” and “should cost,” and he describes what happened when his organization started using the digital thread to free up communication with his supply chain partners and better improve supplier collaboration throughout the entire sourcing ecosystem. Here’s my conversation with Don Stamets.
Does Cost Model vs Should Cost Model in the Supplier Relationship
Leah Archibald: Can you explain the difference between a Does Cost Model and a Should Cost Model?
Donald Stamets: Does cost model is when people don’t know much about manufacturing or supplier collaboration, and they want a magic bullet. They drop a CAD model into the supply chain management software, and they say, “Well, see Mr. Supplier, this is what it has to cost.” And people go out and use that as a club to beat their suppliers into submission. Unfortunately, suppliers have come to spot cost savings initiatives that are win-lose rather than win-win. And today they can walk away from those negotiations. Because with the current supply chain shortages, and the scarcity of raw materials, if you don’t have good supplier relationships your suppliers can just stop doing business with you. With the current supply chain challenges, if you don’t have positive supply chain collaboration, honestly, suppliers are walking away.
Leah Archibald: You’re saying that given the current supply chain disruptions, sourcing and procurement are just losing their ability to squeeze?
Donald Stamets: That’s right. Because if I squeeze any more cost savings out of my strategic suppliers, they might as well shut down. This is why it’s not just about lowering cost. It’s about having a fact-based conversation, based on a shared design language. With shared understanding of the product costs and the manufacturing processes, you can have a collaborative relationship. You can share cost savings initiatives with your supplier, rather than working against your supplier. And without that supplier collaboration, it becomes really difficult to get any gains. Because you’re not giving any.
The Digital Thread Connects Supply Chain Stakeholders
Leah Archibald: I think the digital thread is key here to connect the supply chain stakeholders. Having a single version of the truth all up and down the value chain, that allows you to show your strategic suppliers how they could turn the dials, how they could get cost savings or increase the sustainability of the product. I think the digital thread as critical for supply chain visibility.
Donald Stamets: Very much agreed. And one of the things that I would say about having everyone in the ecosystem on the same metrics is that it gives me the opportunity to sit across the table from a private owner of a machine shop and say, “Here’s what’s going on with us. We’re looking at the same metrics. Here are our dashboards. I’m showing you this because I want to have a collaborative relationship with you.”
There’s something so revealing about stripping back the negotiations to get to that truth. Yes, you have to appease the stakeholders in the C-suite. But the people who make the parts have to trust you. This is a trust factor. It’s not just being used to club a supplier over the head to death for the sake of profitability. A collaborative relationship means saying, “This is what I need for my profitability. What do you need for your profitability? If you can’t make this product for the price I think is fair, let’s look at the workflows and walk through them together.”
Leah Archibald: If the supplier relationship is going to have sustainability in the future, it’s got to be a collaborative relationship.
Donald Stamets: I applaud that vision.
Leah Archibald: But collaboration based on shared metrics. Supplier performance that’s based on win-win.
Donald Stamets: You won’t win without supplier collaboration.
Leah Archibald: Thank you so much for talking with me.
Donald Stamets: Thank you.