Cooperative supplier relationships are more profitable than adversarial ones

    Louis Green
    Ram gridlock

    Recently, buyer-supplier research firm Planning Perspectives, Inc. issued a press release reaffirming a key tenet here at Supplier Success — that cooperative supplier relationships are better and more profitable than adversarial ones. It’s clear from PPI’s research that the old “prisoner’s dilemma” mentality must be cast aside in favor of more collaborative, and ultimately fruitful approaches.

    Cooperation is not just a virtue, it is a benefit.

    In the words of the study’s author, John W. Henke, Jr., Ph.D., president and CEO of Planning Perspectives, Inc., there is “a direct cause-effect relationship between an automotive OEM’s supplier relations and the OEM’s operating profit.” The release goes on to state that “core” or “foundational” practices including fair financial treatment are key to improving supplier relationships, leading to additional benefits.

    I would advocate that early supplier payment and affordable capital costs fall into this category of cooperative behavior. Supply Chain Finance and Dynamic Discounting are two simple and easy cooperative methods to make supplier pay terms fast, fair and transparent. Roughly 85% of suppliers who are given the option to use Supply Chain Finance choose to do so for precisely these reasons.

    The release also confirms that suppliers who are given room to grow and expand often go above and beyond their contracts to serve their customers. According to the release:

    Suppliers with good working relations with an OEM provide their customer considerable benefits. These suppliers:

    • Are more willing to invest in new technology to meet future OEM needs, and are more willing to share new technology with the OEM
    • Are more willing to support the automaker beyond contractual terms
    • Communicate more openly and honestly with the OEM
    • And importantly, give greater price concessions to the OEM

    This is critical in an era of smarter components, where one part can actually serve as a larger nervous system for the entire product. If a supplier has good relationships and the money to invest in innovation, it is much more likely that they will share these innovations with the buyer.

    The long held view that in order for me to succeed, you must fail is simply outdated. Today there are plenty of supplier finance options that make mutual success between buyers and suppliers possible, and they start with a cooperative approach.

    Louis Green is the founder and CEO of Supplier Success, LLC. He is a nationally known expert in the fields of procurement, supply chain management, and supplier diversity.

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