Most firms have learned that their customers can be a valuable source of insight, providing ideas as to how they can create and capture value. Fewer firms, however, have learned that similar contributions can come from their suppliers. In today’s challenging business environment, tapping every available source of information can be a factor that sets top-performing firms apart from their competition. There are several key lessons that have emerged from those best practice firms that have transformed their suppliers into key business partners with whom they enjoy shared successes. These lessons are ones that can enable a firm to become a good customer, one that lets their suppliers help them grow.

A number of years ago, as part of a project, I interviewed a supplier about several of their largest customers. In the context of the discussion, I asked the executive for her firm’s definition of a good customer. The response started off humorously, but evolved to provide some sharp insights[1]:

“Big orders, reasonable prices, quick payments – those things are obvious, I guess. But in a broader context, I think of three things. First is the information flow, the communications between the two firms. My best customers tell me what I need to know in order to be successful. They share their forecasts, their plans, their headaches, etc. They don’t keep us guessing and, as a result, we have a chance to be successful.

“Second is that they accept us as part of the team, as opposed to keeping us at arm’s length. What this lets us do is come to them with new ideas, sometimes new ways to do things. We went to our customers with what we thought was a novel idea, one that required that they let us take over some responsibilities that they previously did in house. With some customers, this would have been rejected out of hand. We wouldn’t get to the second slide in the presentation. With a good customer, we’ll get a hearing, and if the idea has merit, they will work with us to deal with whatever issues there are.

“Third is that there’s an openness to the relationship, with quite a few people involved. Again, in contrast, in some relationships, everything goes through purchasing; there’s a gatekeeper involved who usually doesn’t have our best interests in mind. They will justify that on the basis of competitive fair play or company secrets or some other rationale. But the end result is that there’s a choke point in the relationship, and the right people and departments never connect with one another. Look, a materials expert needs to talk to another materials expert, not a purchasing person. All the purchasing person is going to know is that the spec’s are a, b, and c. So the people that might be able to spot an opportunity or a problem and get ahead of it never connect with one another.”

The insights from this executive about the characteristics of a best-in-class customer are important, as it’s increasingly true in today’s complex business environment that in order to grow, a firm must attract the best suppliers and motivate their strongest contributions. With such a high share of the value added of most businesses linked to supplier contributions, C-level executives across the board are realizing that suppliers can contribute far more than just lower prices and security of supply. Their firms must rely on their suppliers for innovation, for contributions that improve manufacturing and other processes, for ingredients and equipment that yield energy efficiency and environmental gains, and for easing the challenges of entering new global markets. And that list is just a short extract from the roster of contributions that strong suppliers can make to their customers, as long as the channels are open for the right information to flow and the critical discussions to take place.

To realize the advantages of attracting the best suppliers and motivating their strongest contributions, there are several lessons that go beyond the three solid pieces of advice provided by the executive in the interview above. These lessons don’t replace the three fundamentals that she cited – good information flow, effective partnering, and a network of touch point relationships – but rather help to make them operational and to make being a best-in-class customer part of a company’s culture.

The first lesson is that being a best-in-class customer must be applied selectively. Not all suppliers are in a position to make a strategic contribution to a customer.  Not all of them have insights that are critical to future growth and profitability.  Each customer must identify the suppliers that can make a difference, and then concentrate their attention on them. This doesn’t mean that the firm should be a bad customer with other suppliers, just that certain best customer practices should be reserved and emphasized for those suppliers that are in a position to make significant contributions. In CoDestiny[2], a process is defined for identifying those truly significant suppliers, those that are important to the implementation of core elements of the customer’s strategy, that are important in the eyes of end customers further down the customer chain, or both. Identify those suppliers, and focus best practices on them. They are the ones from which insights can emerge.

The second lesson is that a different approach is required for managing strategic supplier relationships. Many firms serving business markets have long ago implemented a strategic accounts team, with a dedicated account team and a distinct cadence and focus to those large, highly important customer relationships. Almost every element of relationship management for those strategic accounts is different from what is used to manage the firm’s other customers, often starting with executive-level sponsorship and involvement in the relationship. The same philosophy applies to strategic supplier relationships. A best-in-class customer will bring a very different approach to these relationships.

One important difference in this regard is that a best-in-class customer will actively involve strategic suppliers in end customer relationships. The norm in many industries is for firms to keep their suppliers away from their end customers, with messages of the form “we’ll tell you what you need to know” and “don’t muck around with our customers”. While common, it’s often a bad practice, and it’s exactly the opposite of what should be done with a strategic supplier. The supplier’s ability to deliver value along many of the dimensions cited earlier depends on their understanding of opportunities for contributions that will make a difference. Many times, suppliers that have been involved in end customer relationship see analogies to challenges they’ve faced – and overcome – with other customers in other business environments. Ensuring that suppliers are aware of your firm’s customer challenges is prerequisite to their ability to help you solve them.

The third lesson is that in strategic supplier ó strategic customer relationships, the two firms need to take a “systems perspective” when thinking about strategy. They need to be open to changes in the roles and boundaries between the two firms. It’s a simple principle of optimization that the when you focus on the whole system instead of its components in isolation, you have more options for improvement. This applies when suppliers and customers are confronting problems. Sometimes the solution requires a new way of doing things, shifting responsibilities from one firm to the other or making changes in processes in one firm that open the route to savings in the other. The gains from such collaborative efforts at problem solving can be substantial, and create a value pool that can be shared between the two companies.

The business environment of 2012 and beyond will continue to challenge most businesses. Not only are some segments of the economy still only slowly recovering, but new challenges from global competitors and raised expectations across dimensions ranging from product quality to environmental friendliness to service responsiveness will keep company leaders awake at night. The firms that are able to bring all of the resources available to bear on these challenges will be those that prosper and reward their shareholders. Supplier insights and contributions are among those resources that must be tapped. Identify those suppliers that can be a part of your firm’s success stories and implement the practices that will enable them to do so. The payoff will be enormous.

Author: George F. Brown, Jr.

[1] This and other case studies are presented in Best-in-Class Behaviors in Business-to-Business Relationships, by George F. Brown, Jr. and Atlee Valentine Pope, Blue Canyon Partners, Inc., © 2006. This article can be downloaded in .PDF format from the Publications page of www.bluecanyonpartners.com.