Why Making It Easier For Suppliers To Do Business With Your Organization Is A Vital Competitive Advantage – Vendor Relationships
Contributor Post from Edmund Zagorin
CEO & Founder
Ask yourself this question: What is the difference in value between your organization’s best vendor relationships and average vendor relationships? Is it significant? 2x difference? 10x difference? What is the true value of reliable, consistent, trustworthy excellence in a supply or service partner?
During periods of rapid technological acceleration, most leaders will tell you that the difference in value between the best and the rest is more than 2x. In other words, the distribution of excellence in your vendor portfolio looks more like a ski slope down from your y-axis (e.g. a “long tail”) than a bell curve.
The reason for this phenomenon is profoundly connected to the acceleration and diffusion of digital technology that can reduce the cycle time of a business process by an order of magnitude. Some of your vendors are probably fast adopters, meaning that they are able to answer your questions quickly, adapt to changing market circumstances faster, respond to your emails and answer your questions in real time. Consider that the phenomenon of a greater than 2x difference is observable in many other parts of the enterprise, including:
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- departmental cycle time
- sell-side product market share
- employee talent & compensation
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In other words, your organization’s best department has a cycle time more than 2x better than your organization’s average department. The market share of your organization’s best product or service has more than 2x greater than your organization’s average product or service. Your organization’s most compensated employee is paid more than 2x your organization’s average employee compensation, and is likely to have skills that are worth more than 2x your organization’s least skilled employee. In each of these cases, the difference between the best and the rest is more than double. What does this mean for your supply chain?
After three decades of outsourcing, it is likely that some of your greatest levers of enterprise value work for your vendors. Consider that there may even be people who work in your office, side by side with your FTEs or on site in other locations across the globe who are actually employed by your vendors. They are helping your teams create and launch new products, they are making sure that your contracts are being sold, they are driving important commercial results for your organization. And they are part of your supply chain! This is why talent is only part of the value creation story: awesome vendor relationships will likely play a key role in company biggest outcomes, especially in technical and creative roles that are challenging to hire for.
The classic example in Silicon Valley is Uber and Twilio. Twilio enabled Uber’s ride-hailing service with the technical platform to create a phone number in any country to connect driver with rider, and to enable text messaging. The rest in Silicon Valley history. Would Uber have been able to grow as fast or spread as broadly if drivers and riders couldn’t call each other to ask where the other was? What would the market share versus Lyft look like if the vendor relationship had shaken out differently or was done on unfavorable terms?
This same dynamic is ultimately true of all globally integrated manufacturing supply chains over the next decade, particularly as 3D printing and CAD workflows become ubiquitous. We are already entering an era of extreme price volatility, where commodity prices in different parts of the world fundamentally alter what contract manufacturers will be competitive for the Bill of Materials (BOM). What happens when innovation itself begins to drive price volatility, as a companies prices are literally impacted by their speed of adoption of connected, distributed, autonomous machines? (Think: 3D printers but for everything and everywhere, from metals, plastics and even human tissue, from integrated circuits to nanoparticles). What happens when the use of new fully automated production affects bottom line revenue more than any other single factor? What happens when the disruption created by autonomous manufacturing makes the disruption from autonomous vehicles look like child’s play?
It is quite possible that over the next decade there will come a sudden, urgent tipping point where all manufacturing companies will have to rethink their approach to sourcing, contracting, transporting, assembling and managing all of the materials that go in all of their physical products. Ask yourself: how ready are my vendors for this tipping point? Who are my top vendor partners and my top relationship managers, and what are they doing to prepare for this? How many of them will have retired by 2025? Executives are already doing that math and realizing that if this tipping point for autonomous manufacturing has even 1% the force of what’s described above, then the speed of their procurement’s status quo digital transformation looks a lot more like the speed at which Blockbuster adapted to Netflix (by going bankrupt) than the speed at which Microsoft adapted to Dropbox (by launching Sharepoint). Microsoft has had an amazing turnaround and in some parts of the world Sharepoint is and will remain dominant. The story of the VHS rentals business model provides a cautionary tale.
The good news is that change is possible. The best insurance against the unknown investing in excellent talent is either in your team or in your supply chain partners.