Blog series: Procurement as a value driver 

During recent years, the resiliency of global supply chains has been under constant pressure. Procurement organizations have faced a new level of risks while the need for procurement, in order to enable growth and deliver value, has increased. According to the Deloitte 2023 CPO survey, to deliver value against top strategic business priorities – such as driving operational efficiency, enhancing environmental, social, and governance (ESG) and corporate and social responsibility (CSR), and developing supply chain resiliency – leading procurement organizations see supplier collaboration as a top value-enabling strategy.
 

Creating value through supplier collaboration

One of the key characteristics of the top-performing procurement organizations is related to the allocation of time: instead of focusing on transactional and operational processes, time is increasingly spent on strategic activities such as supplier collaboration. The core idea behind this is that by sharing risks and rewards and focusing on collaborative operations where information is shared both ways, both buyer and supplier aim to deliver more value compared with when they have an arm’s-length relationship which is purely transactional and limited to supplier selection and purchasing, involving minimal information sharing. The Benefits (from the procurement organization’s point of view) of supplier collaboration are typically:

• Increased flexibility and resiliency in regard to managing demand changes and mitigating supply chain disruption.
• Increased transparency in response to ESG risk.
• Operational efficiency achieved by reducing cycle times and increasing quality.
• Reduced total long-term costs.

In addition to value generation, supplier collaboration has a huge role in protecting value. In the Deloitte 2023 CPO survey, the risk of supplier resiliency/supply continuity was raised as the third most significant risk. To build supplier resiliency, top procurement organizations are investing in supplier relationship management and supply market intelligence as top priorities.

Strong relationships with key suppliers improve supply chain resiliency and risk management and can be seen as a source of competitiveness in ever-changing market environment that is full of uncertainties.
 

Supplier collaboration barriers

The benefits of supplier collaboration are evident. Yet when it comes to unlocking the hidden value, sometimes it is easier said than done. In the normal course of events, supplier relationships are exposed to stress and strain; mutual expectations might not be met unless both parties are thoroughly committed to success. Relationships do not develop without joint effort, and they also include risks that should be identified and mitigated accordingly by both parties.

In addition to the time and effort required to plan and execute a collaboration strategy, it may also require an intense focus on setting collaboration-enabling technology and changing mindsets in order to orientate outlooks towards long-term value generation instead of transactional cost reductions.

Also, the position of organizations must be considered. For instance, unbalanced power relations between parties can make win–win situations challenging in the long term. On a more tactical and operational level, supplier collaboration requires common policies, governance and processes if it is to be efficient and successful. However, despite the several possible pitfalls lying in the path of delivering joint value with supplier collaboration, the effort is worth it, and challenges can be overcome with strategic planning and proper risk mitigation actions. 
 

Unlock the full potential of supplier collaboration

Successful supplier relationships do not happen by coincidence. A lot of joint effort, commitment, and trust are required during the journey. The following five key steps can help organizations to overcome the challenges and unlock the full potential of supplier collaboration:

1. Select the right partners. Analyze beyond the strategic and financial fit, and consider differences in corporate culture, operating model, and business practices as well. Additionally, think of what tomorrow’s competitive advantage could be and which suppliers could support it.
   
   
2. Align internally and externally. Achieve a clear alignment with
   business stakeholders across all levels, and gain an understanding of the requirements and existing initiatives within and outside the organization. Shift your focus towards the extended supply chain, assessing and judging cause and effect, not only for your own company, but also across the entire network of strategic suppliers. 
   
   
3. Establish mutually beneficial relationships. Make sure that you negotiate a win–win deal for both parties, considering immediate actions as well as future engagements.
   
   
4. Select meaningful KPIs and share information. Select measures that are relevant to your supplier’s and your own business based on your mutually defined strategic objectives, and be specific about how those goals should be measured. Communicate openly and continuously and ensure information flows in both directions on a real-time basis.
   
   
5. Commit to change. Recognise that entering any strategic supplier
   relationship will result in changes within each partner organization and that mutual commitment to ongoing, incremental change is required.

All this is just the tip of the iceberg when it comes to designing and implementing supplier relationship programmes. We at Deloitte have wide experience in improving supplier relationship management, ranging from strategy design to technology selection and implementation, covering everything in between. We are happy to discuss these topics further and deep dive into the interesting, yet sometimes complex, world of supplier collaboration.