Insights

Opinion: Can This Marriage Be Saved?

It takes a significant effort on the part of suppliers and customers alike to ensure that strains on key supplier-customer relationships are avoided, and there is a common focus on the contributions that create value.

The logistics industry learned that lesson during the recent recession, when trouble in the economy and excess capacity in the industry created enormous pressures on volume and rates.

Now that the economy is recovering, and business is finding better footing, it’s time to be proactive and plan for the possibility of future distress of the sort that could derail a key business relationship.

It’s also a time to rebuild the foundations of key customer relationships and make sure both organizations — yours and theirs — have a clear understanding of how they can continue to participate in a strong, value-creating relationship.

A few years ago, my firm conducted interviews with two companies that had a longstanding customer/supplier relationship. Those talks revealed and described that relationship’s painful deterioration.

Executives in the supplier organization pointed fingers at their customer, noting that a new executive had arrived who gave no weight to the long history of contributions made by the supplier, especially during tough times. They felt the customer now placed all of its weight on price — even showing a willingness to engage a rival supplier with a long history of performance problems just “to save a few bucks.”

Like most stories, of course, this one had two sides. Executives in the customer organization pointed to their own challenges, including fierce new competitors that had appeared even as the economy was sinking. From their perspective, every penny mattered, not just to their success, but to their very survival. They felt their longtime supplier had “simply stopped listening” and its personnel heard only what they wanted to hear.

Two solid recommendations emerged directly from this case study, and they apply in good times as well as bad:

• It is essential for the key principals in a supplier-customer relationship to get together regularly and ask this question: In terms of your expectations and priorities, what has changed since we last met? This question must be asked regularly, and the answer has to be taken seriously, even when its implications are painful.

• In any significant supplier-customer relationship, there are going to be many “touch points” between the two organizations. That’s almost always a very good thing, as the insights necessary to spark valuable contributions often emerge from unexpected connections across the two organizations’ departments and staff — but sometimes there is a down side. The second recommendation, therefore, is that the principals in the relationship must regularly say to each other, “This is what we’re hearing from your organization and how we plan to react to it. Are we all on the same page?”

Beyond these basics of blocking and tackling that are so important to the success of key relationships with customers, it’s important to re-emphasize the types of efforts that had made this supplier so valuable in years past.

The transportation and logistics industry is going through many changes — shifts in the modal mix, changes in work rules, introduction of new technologies that can have a major effect on productivity and fundamental changes being made by shippers in the structure of their distribution centers. Add to that the ongoing evolution of global trade and in the mix of commodities being shipped, and the importance of focusing on value creation becomes quite clear.

The questions raised above are a good start in that regard, but best-practice firms work aggressively to interact with their customers about their future plans. Ask detailed questions that can spark a dialogue about the future challenges facing each customer organization:

  • “Looking forward, what changes do we have to anticipate and address?”
  • “What new nightmares are keeping you awake?”
  • “What changes would best help you to be prepared for the business environment your firm sees in its future?”

Again, asking these questions and then giving serious attention to a high-quality response can create a foundation for sustained success.

Formally engaging in supplier-customer discussions about what creates value is not an easy process, especially when everything seems to be going well, but it is far easier than losing a valued customer because the discussion didn’t take place.

Best-in-class organizations on both sides of the supplier-

Customer relationship must take the steps necessary to create a dialogue to ensure that each firm understands the other and to form the basis for an effective information and communications flow that establishes the foundation for shared successes. Firms that do so are well-positioned for success, with outcomes far more likely to be translated into bottom-line rewards for their shareholders.

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