A company with which our firm worked recently communicated some good news:  They had been selected as one of only a few dozen strategic suppliers by a Fortune 500 customer that they had served for many years.

The executive with whom I spoke discussed this good news as follows:

“It was a red-letter day for our firm.  This customer is not only one of our largest ones, but also one that everyone respects as a leader in their industry.  It’s genuinely gratifying to us that they’ve formally recognized our contributions and included us on the very short list of firms in their ‘strategic supplier’ category.  And it certainly will help our own stature as other customers and prospects hear that we were selected.

“But as we celebrated this success, we also started to wonder about what we should do to ensure that this relationship continues to be a strong one.  Obviously we’ve been doing a lot of things right, and the team in place working with this company has always known that that the bar is set high and that their job is to make sure we always clear it with room to spare.

“Is that enough?  Or do we need to do something beyond what we’ve always done to ensure that we are being a great supplier?”

The question is an excellent and important one.  Getting recognized as a strategic supplier is a challenge.  Sustaining that position is also a challenge.  Far too many firms find that the success was transitory, for many reasons[1].  Sometimes the reasons for the failure of a business relationship are outside the control of the supplier and the customer involved, but in many instances, it is the failure of those organizations to take the steps that are needed to ensure sustained success.  In this article, three actions are recommended as ones that should be taken to put the foundations into place for continuation of a strategic relationship between a supplier and a customer.  These three actions are interrelated, and there are significant connections among them, as is discussed below.

Clarity about Performance Metrics and Goals

The first action is to define some form of dashboard that defines the performance metrics important to the two firms involved in the relationship, along with explicit (largely quantitative) goals for each of those metrics.  It is remarkable how many significant business relationships operate without an explicit statement of the performance goals that are important.  And it is even more remarkable that in the study of “relationships gone sour”, the vast majority had either never defined performance metrics and goals or only done so in a vague way.  It is often useful to think of two categories of performance metrics.

The first category of metrics that should be included in the dashboard involves basic “blocking and tackling” metrics that are important to the relationship.  These may include such fundamentals as metrics relating to quality, on-time delivery, and support levels.  Our research on “horror stories” told by customers about their suppliers found that a significant majority of such horror stories involved failures in implementation on the part of the supplier[2].  The reasons why these basic performance metrics are important are many in number:  customer goals with respect to just-in-time sourcing, targets for cycle-time reduction, the increasingly high standards of consumers in most markets, and the challenges of new global markets among the many.  Understanding the basic performance metrics and expectations about them is an obvious first step in building the basis for successful management of a strategic relationship.

The second category of metrics that should be included in the dashboard involves those that are unique to a “strategic relationship”.  After all, only rarely does a customer choose strategic suppliers on the basis of the size of the buy from that supplier.  Far more often, the choice is made because the customer believes the supplier can contribute to shared successes.  Across strong supplier-customer relationships, the focus of such contributions varies widely.  Case examples involve strategic relationships designed to reach new global markets, to achieve a breakout offering involving some new technology, and initiatives to take costs out of the system by a cross-company reengineering of the roles and responsibilities of the two companies.  Strategic relationships almost always involve a belief that some shared success is possible, going far beyond the many day-to-day transactions that occur in that relationship.  Identifying, and agreeing upon, what these possibilities are and establishing goals for them is thus the second critical factor to include in the design of the dashboard.

Obviously developing this dashboard is purposeful, and the purpose is to give both firms total clarity as to what is expected from the other organization in the relationship.  The presumption – and typically a good one in strong firms – is that as long as the metrics and goals are known, management actions can be taken to achieve them.  This topic will be further addressed in more detail later.

A Focus on the Future

A characteristic of best-in-class business relationships is that there is a constant focus on the future[3].  It stands in sharp contrast to the situation that exists in weak or troubled relationships, where almost all discussions are either about past problems or near-term transactions.  Therefore, a second priority in creating foundations for long-term strategic relationships is defining the future-oriented topics on which the two firms should collaborate.  This discussion of future-oriented priorities is very closely related to the identification of the performance metrics in the second category above, namely associated with the strategic, rather than transactional, nature of the relationship.

The potential roster of such topics is almost endless in most industries, and one of the most exciting parts of implementing the recommendations made in this article is the discussion between the supplier and customer as to which among the many future-oriented topics should be given priority.  Some choices are obvious:  a new product release, the need to meet a new regulatory standard, etc.  Others may have been defined by actions taken by one or both of the firms: expanding the relationship into a new market that has been targeted by the customer, extending support to a newly-acquired firm.  But many other options exist beyond these obvious ones, and the more effectively the two organizations can engage in creative discussion of such options, the more likely they are to identify ones that have a real potential to create value for both firms.

One executive described a meeting, involving individuals from his firm and from a strategic supplier, oriented towards identifying future-oriented action plans:

“I know a number of people went into this meeting thinking it was somewhat of a make-work assignment conjured up by the two relationship champions, but it turned out to be anything but that.  A part of the reason for that was the pre-work that had been done, as it served as the catalyst for a very productive discussion.

“During the day, we had two reports from outside experts that were brought in for the session.  One of these people gave his perspectives on the key challenges our industry would face during the next five years.  Some were in the category of old news, but a few weren’t on our active radar scope.  The second, and far more valuable, presentation involved a summary of what our own customers had to say about the future.  That was eye-opening, as they were thinking about some things we aren’t ready for.  There are a few of these we’re still trying to digest and think through in terms of implications for us.

“Another exercise during this meeting was asking each of the two firms to be very open and not worry about thin skins, and tell the other what they were doing that didn’t make sense.  I know we had a few examples that we communicated to [the supplier involved in the meeting].  And they had a few examples to tell us about.  I guess thin skins had been the assumption prior to then, as a few of these messages had some age on them.

“The goal established when we started the session was to come up with three action plans on which we would collaborate.  By the time we got to the final part of the day, the challenge was cutting the list down to three.  We got there, but we have a starter list for the next time we go through this exercise that includes some pretty interesting ideas on it.”

While it may be easy to identify some obvious future-oriented areas for collaboration, the payoff from an investment in going beyond the obvious can be substantial.  And the effort almost always also pays dividends in building trust and understanding between the supplier and customer executives involved in such a discussion.

A Relationship Management Plan

The third action to be taken to create the basis for a long-term relationship is that of defining a formal plan through which the relationship should be managed.  As we’ve studied significant business-to-business relationships, it is remarkable how many rely on informal processes and interactions to manage the relationship.  Like the failure to define performance metrics and goals, this can be fatal.

Developing a relationship management plan has what, who, and when dimensions.  The “who” roster can be extensive.  It should include the individuals who are the point persons in managing the relationship, a pair of executive-level champions, and a roster of individuals across functional and geographic segments of the two companies that are relevant to the transitions and priorities that define the relationship.  The point person from the supplier company is typically an individual that has the role of managing the strategic account relationship.  The point person from the customer organization is often the individual from the supply chain management group with responsibility for that supplier relationship, but numerous examples exist of the customer’s point person being from a key operational group within the company.

The responsibilities of these point persons are extensive.  Across best practice examples, the proactivity and creativity cited in the case study in the previous section of this paper are regularly in evidence.  Sustaining those contributions is often difficult, as the point persons in a strategic relationship can easily be consumed by the details associated with the numerous everyday transactions that often take place in a strategic supplier-customer relationship.  It is critical that the individuals in these roles come up with a time management strategy that is focused on the future and on opportunities, and not allow themselves to be consumed by everyday transactions.

One way in which they can do so is by creating strong touch points between the two organizations that can interact directly, and avoiding situations in which they serve as funnel points connecting the two organizations, a relationship management strategy which is inevitably doomed to failure.   As the performance dashboard and the future-oriented priorities are defined, and in consideration of the products, functions, and geographies associated with everyday transactions, the point persons in strong relationships quickly involve others from their organizations and make sure that they are fully engaged with a clear sense of the priority given the strategic relationship.

The executive sponsors of the relationship must do more than show their corporation’s flag at appropriate events.  They must be the champions of the point persons, sometimes taking action to make sure that these individuals can focus on the right topics and be successful.  They must problem solve when that is called for.  And they must ensure that their organization puts into place the processes, systems, and skills that are necessary for sustaining successful strategic relationships[4].

The “what” and the “when” elements of the relationship management plan will be driven by the performance management dashboard and the specific future-oriented priorities that are defined.  In virtually all strong supplier-customer relationships, there are meetings at a quarterly frequency, or more often, with a formal agenda and an explicit review of progress vis-à-vis the goals and objectives.  Ideally such meetings will involve the point persons, the executive sponsors, and they key participants from the two organizations that are involved in an ongoing basis in the relationship or are central to the topics on the meeting agenda.

One of the imperatives at such meetings is that there is full and explicit discussion.  In the article titled Troubled Waters that was cited earlier, the deterioration of the relationship used as a case study was due to the firms involved failing to ask the right questions and probe deeply enough to ensure that communications were delivered and heard.  That article makes explicit recommendations as to some questions that should be regularly asked in strategic relationships, including some straightforward ones like “In terms of your expectations and priorities, what has changed since we last met?” and “This is what we’re hearing from others in your organization and how we plan to react to it.  Are we all on the same page?”

One question that is often asked is who should take the lead in advocating and managing the interactions between the two firms.  The data suggests that it is most often the supplier organization that does so.  This probably reflects our heritage, in which suppliers court customers.  But to some extent, why this is so is somewhat of a mystery.  Every customer organization that I’ve ever interviewed that has taken the lead role in building relationship plans of the type described in this article has provided ample evidence as to how it yielded value for their own organization[5].  In the end, what matters is that at least one organization take the responsibility to implement the key actions outlined in this article, knowing that in almost all cases, the successes that will result will quickly turn the effort into one embraced by both companies.

Summary

Strong supplier-customer relationships can yield rewards for both of the firms involved.  When a relationship is recognized as strategic to the businesses involved, they must take proactive steps to ensure that the relationship is managed so as to ensure that the value being created is sustained over time, despite the inevitable changes that will take place in both organizations and in the business environment.  The key actions that must be taken fall within three categories.  The two firms must reach a clear understanding as to the key performance metrics and goals that will define success for the relationship.  They must identify the highest-priority future-oriented themes on which they can collaborate and achieve shared successes.  And they must put into a place an explicit relationship management plan that includes “What-Who-When” details to guide assignments, resource allocation, and interactions.  When these actions are taken, the two firms involved have established the foundations for an ongoing stream of shared successes that reward both firms’ shareholders.