Key to a Successful Supplier Relationship Management

In a 2016 ISM magazine article published by Mickey North Rizza (The Art of the Relationship, ISM October 2016), the author describes the importance of supplier relationship management through a Seven-Point Supplier Relationship Management (SRM) Focus approach.  Mickey was spot-on as she described the seven key points and various nuances that should be present in supplier/customer business transactions.   The most important point, which is also Number 1 on her list is “Relationship is the focus”.  “Earning your suppliers’ trust with honest communication, listening to concerns and involving them in your processes ultimately makes them a vested partner in your business,” .  I would add that on the spectrum of trust, we as western designers, marketers and manufacturers of products should strive for the development of  “institutional trust”  which is one of the highest levels of trust as this guarantees that each entity in the relationship will do what it says it will do.   Through my interaction with clients and suppliers across the spectrum as a Managing Director at Fontana Global Associates, I see a troubling pattern of decreased value of trust among not only businesses, but also individuals involved in the transactions.

Author at one of the many supplier visits in Asia in 2016

Relationship – what really constitutes a “relationship” and why is it important to establish a mutually beneficial one at the beginning of the business process?  In order to answer this question, one needs to look at the fundamentals first.  If you look up the definition of the word “relationship”, you will see that word is defined as “The state of interaction between two or more people, groups, or countries” (Merriam-Webster Dictionary), which, by further definition, involves two or more subjects or parties.  In this context, the word is not only defined by what we, as potential customers want or need but also takes into account what the suppliers objectives, limitations and goals are.   As Rizza says in her article, adopting a “do as I say” philosophy is not the way to build a lasting relationship with your suppliers or manufacturers.  “It actually involves give and take and a lot of active listening” – Rizza adds.

In order to establish a solid business process, there are a few additional key factors which business owners and managers should take into account, which complement Rizza’s seven-point management’s focus.

  • Understand a difference in fundamental philosophy and mentality.
  • Use the appropriate relationship model – don’t default to transactional one.
  • Go beyond E-mail.

Let’s now discuss the fundamentals in order to really understand how to successfully develop and manage a relationship with potential suppliers from Asia.

Understand a difference in philosophy and mentality between us and our potential suppliers.  First, we need to understand that we, (from U.S. and most of Northern European countries) come from what some define as “universalist” or rules-based culture while most of the rest of the world is better defined as “particularist” or relationship-based cultures and society.  (Stanford University, 1999)

In universalist cultures (U.S., Germany, England etc), the focus is on rules as opposed to relationships between people, the later usually being key in many Asian, African and Latin American countries.  Rules based focus makes sense from an international business and logical standpoint but this business approach does not always compliment business relationships with our Asian, African and Latin American counterparts since they are most often particularist” or relationship-based cultures.  As Western business owners and managers understand this and bridge the gap between the two thought processes, they will begin to see a lasting and mutually beneficial relationship flourish.

A “Clean Room” at an electronics manufacturing plant in Asia. 

Use the appropriate relationship model – don’t default to transactional one.  Once the fundamental approach to business is established, it’s time to think about how to approach the potential partner, supplier or manufacturer and what type of relationship is appropriate for the specific case.  We can approach the potential suppliers in a transactional or collaborative (relational) way.  See the difference between the two models here.  More often than not, westernized businesses across the developed world use a transactional model to a strategic supplier relationship, as this model requires minimal time and effort to establish a price for goods and services.   However, if we are concerned about establishing a fair and reasonable price (lowest price does not always equate to a best value) and are dealing with a situation where a large initial investment is required (electronics manufacturing), a collaborative relationship will be a better option.  This is especially true if we are looking at building a long term business relationship or a strategic alliance, which in the end will lead to a greater integration between us and our suppliers.  Choosing an appropriate type of relationship can reduce miscommunication, ensure better quality of products and services and greater amount of trust which in a long run will save time and money.

Go beyond E-mail.  In an effort to build a long lasting, sustainable relationship with a potential supplier, we need to focus on developing a personal relationship first.  In essence, we need to make the effort to meet the potential suppliers and get to know them, find out what drives them, and understand their future vision for the company.  I am not suggesting to only look at their web site, research a LinkedIn profile, or read a product brochure.  Rather, get on an airplane and travel to their location, see their facilities and then share a meal with them.  This is really important, especially if we are dealing with “particularist” or relationship-based cultures.  You will find out all sort of key facts as you “break bread” which are not on the company’s web site nor advertising brochures.   In one such personal interaction, I was able to find out that the potential supplier was in the middle of succession planning and transition which created potential uncertainties.  In another occasion, the supplier CEO was actually also an influential member of the local business association and was considered a a sort of nobility (in Malaysia called Datuk Seri) – both of which indicated that the person was dependable, influential and capable of developing and sustaining a long term relationship.   However, the most important fact is that when we as Western managers or business owners visit and meet our potential suppliers (or contract manufacturers) in another part of the world, we gain much more credibility as a reliable customer (client) which in term will help us build a long, sustainable and mutually beneficial relationship.

Don’t be afraid to share a meal with your supplier or partner 

In this age of technology-driven business processes and communication, relationships built on trust and solid foundation will not only continue to be important but will be a commodity which wise businesses will want to invest in.   In order build a lasting and mutually beneficial relationship, one needs to understand the differences in fundamental philosophy and mentality between Western and other world cultures.  Also, it is important to apply an appropriate relationship model (transactional vs collaborative) that is conducive to the relationship.  Finally, we should remember that in a technological savvy world, it is important to remember that face-to-face interaction should not always be replaced by email and skype as the only means of business communication because personal interaction is instrumental to establishing and maintaining a strong business relationship.

One of the many medical device manufacturers in Asia. 

To learn more about global supply chain management and international business topics, visit my blog here.

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