Clients: be a better buyer - become a Trusted Partner to your suppliers
In the previous blog I set out why and how to be a Trusted Partner to your strategic clients. In this one, which is a chapter from our new book ‘Choose Trust’, I explain why and how clients benefit if they also adopt a Trusted Partner mindset with their suppliers.
"Do not choose the one you don't trust and trust the one you chose."
Ancient Chinese proverb
There had been terrible floods in the English county of Cumbria. Farmers were tearing their hair out at the damage to crops and livestock. The food industry which depended on them was equally worried.
The Chief Procurement Officer of one of the country’s biggest restaurant chains called one of their small farmer suppliers who had been affected. He asked how he was and what difficulties he was facing. The answer surprised him.
“It’s been terrible,” came the reply. “I’ve lost much of my stock and produce. But don’t worry, among all of our customers I will make sure you get all of your orders fulfilled.”
“How can you promise that, and why are you doing so?” the procurement guy asked.
“Because of all of our customers you are the only one to have called me to ask how I am and what is happening,” came the reply. “So I will make sure we don’t let you down.”[1]
The way businesses manage those who supply them impacts every aspect of their operation, whatever the scale of the organisations involved. Because there is always choice, suppliers can decide who to most please when there are choices to be made. In a world of open communication, your customers will make decisions based on the whole process behind a product or service. Whether you are a corner shop depending on the local farmer and regular customers, or a major supermarket with a complex supply chain, the same principles apply
The contrast is once again between being highly transactional – seeing suppliers as simply inputs which need to be managed and cost which needs to be minimised – or trusted partners in the overall creation of value. The change in mindset leads to a change in behaviours.
Those who supply you will help determine whether you are trusted
The stakes are high. Everything your suppliers do or say about you, or how well they serve you, will reflect on your company, and how you treat them will help determine this. Smaller businesses will disproportionately benefit or suffer from this, as they rely hugely on fewer key suppliers, and so if trust is damaged this could provide critical for them. Big organisations need to embed high trust relationships in their supply chain as a matter of policy.
Patagonia is a multi-billion- dollar manufacturer and retailer of outdoor clothing and equipment. In 2022 its founder, Yvon Chouinard, created a Purpose Trust, into which he transferred all of the company’s voting stock. It meant that the company’s values would be central to the business decisions made in the future, with the explicit purpose as being ‘in business to save our home planet’. In effect, all of the non-voting stock was transferred to a not-for-profit organisation dedicated to protecting the environment. [2]
This was the latest chapter in a company that has always prided itself on demonstrating responsible business behaviours. Patagonia’s approach to its supply chain is also driven by its purpose in what it calls its 4-fold approach: it screens suppliers to meet sourcing, quality, social and environmental standards, and, if they fail any of these, they are not used. Their supply chain strategy is driven by a series of measures, codes and affiliations to ethical bodies. [3]
The rewards for a successful supplier are high. The company’s sales are in the billions. They claim to pay fair prices and the brand is now so trusted that being a Patagonia supplier is itself a quality standard respected by other customers.
As a result, Patagonia is one of the most trusted brands in the world. It is consistently rated as one of the most trusted companies in US research, a position which was only consolidated by the transfer to a Purpose Trust. The result, according to its chairman, is that “because we stand for something, we can also charge closer to what I would argue is the true economic cost of a garment.” In other words, the company can charge a premium to reflect the fact that it recognises real environmental and social costs, and customers trust its ethics and responsibility in everything it does.
Patagonia is an example of a company whose reputation is enhanced by the way it views its suppliers. Others demonstrate the opposite.
In the 1990s revelations about sweatshop conditions damaged the reputation of footwear brand Nike, which denied all knowledge of the problem until it was forced to act. It’s a reputational issue that has dogged the company ever since. [4]
In a landmark report[5], The International Trade Union Confederation showed how large companies rely on a huge supply chain workforce - “hidden workforces” - to deliver their services. So, while they may demonstrate responsible leadership within their own organisation, they may be less responsible with the many people they are indirectly employing around the world.
For example, Wal-Mart’s 2.2m US workforce is dwarfed by the 10m or so ITUC claimed were employed by its suppliers at the time of the report. The figure for other retailers like the French firm Carrefour were, unsurprisingly, similar: its 381,000 employees compared with a claimed 3.3m employed by its suppliers.
Large industrial businesses were the same. In fact, the ITUC claims that 50 of the world’s largest companies directly employ just 6% of the workforce which delivers their value. The remaining 94% are in their supply chains.
This is a function of the nature of increasingly global business and the complexity of what companies offer. But it also means that they depend on a wide range of other companies and their people to trade – and every one of these is a potential risk to their reputation, and therefore the trust their customers and other stakeholders have in them.
The same is often true for smaller businesses. I ran a successful video production business. Although its sales and creative development was in-house, most of the production was carried out by freelance producers, camera crew and editors working at external production facilities. In the days before online distribution and viewing, production of hard copies (for the younger reader, these were called CDs, DVDs and even video cassettes) were done by a specialist sub-contractor.
It was crucial to the success of the firm that those representing it to clients in the field could be trusted, both in terms of their professionalism and the way they showed up. The firm was involved in news-related content, and so the production of the videos was time-critical, and, in many cases, favours were asked from the suppliers involved to meet urgent deadlines.
Without high levels of trust there were many projects which would have failed. This was achieved by the quality of the relationships that had been built up. After every significant project, thank you notes and calls took place; there were frequent social events organised to which all suppliers and contractors were invited; bills were paid on time; and there were frequent check-in discussions to make sure trust was maintained. At every opportunity, it was made clear to suppliers and partners that meeting the client needs was paramount - but that every effort would be made to help everyone support this culture.
Unfortunately, the way most supplier relationships have been historically managed has been transactional and cost-driven. A transactional mindset is common which seeks to protect the buyer and squeeze the price paid by the supplier. This is a power play which results in low trust, poor service and often a worse result for both buyer and seller. The latter seeks to get back margin through the life of a contract, a behaviour which drives even more defensive and transactional behaviour on the part of the former.
The truth is that, once a buying decision has been made, there is interdependence between the customer and the supplier. Behaving towards your suppliers in a power play backfires because it destroys what should be mutual interest in success.
If companies have extensive supply chains, often many times the size of their own business in terms of people and reach, each of these is a point of vulnerability in terms of reputation or efficacy – and trust. The company’s success depends on the effectiveness of this supply chain.
The wonder is that there are not more reputational disasters. What is certainly true is that there are many routine failures – cost overruns, service failures, delivery challenges – and the outcomes are often less positive than they could be.
Moving from transaction to trust
A high trust buyer understands that their role is to manage these interconnected suppliers and partners. Even in the simplest of business situations, the different companies and people can be viewed as an ecosystem, not a buyer and set of suppliers or a supply chain. This is a much more dynamic, interdependent view of the network involved in creating some kind of outcome.
It’s a mindset as much as a strategy, a belief system that can change every interaction between a company and its suppliers, seeing them as long-term partners rather than one-off or short-term suppliers to be exploited as much as possible.
Deloitte defines ecosystems as ‘dynamic and co-evolving communities of diverse actors who create and capture new value through both collaboration and competition’.[1] They all depend on each other to develop and maintain a healthy system, and to individually survive and thrive. Each one is in control of its own behaviours, actions and decisions, but each of these impacts impact others in the ecosystem - which in turn affects them too.
This fact alone makes building trust a key activity that someone in charge of suppliers can focus on to make the process as successful as possible in a sustainable way. Short term success can be achieved through efficient transactions. Long term success requires relationships between the people involved that have trust at their centres.
Instead of control, collaboration becomes the driving force within an ecosystem and this can lead to far greater collective innovation and higher performance for all of those involved. But it requires deliberate and intentional design that can clash with existing cultural norms and approaches to risk. This is where the Trust Triangle can be a powerful foundation for a more effective supply chain.
As a way of shifting this mindset, it is worth using the term supplier or partner to describe those who provide services and goods to you or your company. The rest of this chapter will do this except where the relationship is clearly transactional, and the vendor is ‘merely’ a supplier.
Clarity
ARM is an information technology hardware company founded with 12 engineers in a 14th century barn in the UK in 1990. In July 2016 it was sold to Japan’s Softbank for $32 billion. With sales of just $1.5 billion, this was a high price – so why was it so valuable?
Its value derived from the way it managed its suppliers and partnerships, providing clarity about what it was trying to do, ambition about what could be achieved and a focus on collaboration as the way to innovate and grow. The company designs a specific type of microprocessor that requires fewer instructions, and therefore uses less power, than other chips. As a result, it became the industry standard in mobile devices and other fastest growing technologies. The critical skill ARM developed was the ability to orchestrate the many different partners who made, developed and used its devices. With just 4,000 employees it dominated the hottest tech sectors because it created an ecosystem of global suppliers and partners who aligned with its vision and geared their capabilities towards it. This requires deep trust and a laser focused clarity of purpose. [6]
An ecosystem requires leadership. The role of the leader here is to provide a clear vision, designed to align the actors in the ecosystem, and to ensure everyone understands what great looks like for the customer and the whole process. The foundation of this is trust, because the minute this is lost the whole thing can collapse like a pack of cards as partners and suppliers stop collaborating and the ecosystem begins to unravel.
Equally, there needs to be clarity about the relationship an organisation wants to develop with its suppliers and partners. Intentionally leading an effective ecosystem can be very different from running a tightly managed procurement-led, cost-driven supply chain. Too often, the way major procurement organisations define collaboration is ’you do as I say and you are being collaborative’.
But a high trust approach offers a strong sense of shared destiny, collective value creation and a desire that everyone in the ecosystem should benefit. The culture is one of collaboration, not conflict. To be truly intentional about this, it’s important that the approach is explicitly stated in the clarity process as part of a Relationship Agreement. The capability process of the Trust Triangle means this will be feed through to governance as the relationships develop.
ARM was able to develop an ecosystem underpinned by the idea that “we get rich if our partners get rich”. This is the mutual value mindset that underpins great supply chain ecosystems. Clarity of relationship, combined with clarity of ambition, is the foundation for higher levels of trust that will generate synergy, where everyone involved is adding to the collective value being created and feeding off the ideas, services and products of others in the system.
None of this removes the need for cost competitiveness, efficiency, performance, effectiveness and awareness of environmental, social and values issues. But these are more likely to be achieved and optimised by a collaborative, ecosystem approach. If everyone is aligned around some important ambitions, focused on clear outcomes and trusting in the relationship that underpins them, then the outcomes will be easier to achieve. The ecosystem approach is inherently more flexible and agile, making it better at tackling problems and embracing opportunity.
Character
During the Covid 19 pandemic, the way organisations treated their suppliers and partners was a clear indication of their true character, and one which will have had a long legacy for those who work with them. Their response indicated whether or not they could be trusted.
Morrisons is one of the UK’s largest supermarket chains. Founded in 1899 on a market stall in Bradford, it has sought to retain a culture of being a place that helps everyone to afford to eat well. Its roots in serving the northern English working classes remain evident. At the time of Covid it was Britain’s biggest single foodmaker, relying on a network of small and medium sized food suppliers. These businesses were hit hard when the UK was locked down.
Morrisons responded by announcing they would pay these suppliers early to help with cashflow. It also reclassified smaller suppliers from those with £100,000 of business per year to those with £1million of business, bringing an additional 1000 businesses into the scheme.
This mentality was part of an innovative, agile approach to the pandemic which saw Morrisons pioneer many new services when on what the Chief Executive David Potts called a ‘war footing’, setting it up for sustained growth in the future:
“I genuinely feel the company also played its full part in feeding the nation and it’s properly been a company that’s been there for all stakeholders. The Covid crisis has accelerated the new Morrisons as a truly distinctive business.” [7]
Morrisons’ approach to their suppliera and partners is part of a wider culture, demonstrating a business living its values not just with its own employees, customers and investors, but also with the people and organisations who provide it with the products it sells. Character is demonstrated by what you do. Morrisons demonstrated that its suppliers were not just disposable units of input, but genuine partners who are part of a bigger story.
Its actions also contrast with other big companies during the pandemic who simply announced to their suppliers that, because of their own cash flow issues, they would not pay anybody. This was perhaps understandable in difficult economic times, but the way organisations dealt with this was an indicator of trust. They were storing up trouble for when the crisis was over.
The best looked to communicate and collaborate, agreeing with their supplier/partners what they could and should do try maintain their relationships and respective businesses.
Character is truly shown when there are difficulties. But it is demonstrated right from the start of the relationship in the intention you set about how you want to engage. Choosing trust is the way to maximise the chance of collective, sustained success.
Capability
Remember that the two dimensions to the capability dimension are the way we manage and govern the relationship and how we combine our competencies. In an ecosystem approach to your supplier/ partners these represent a fundamental change from traditional supply chain management.
The way the relationship is managed and governed
The first aspect of the capability dimension is the way relationships are managed and governed. If you have been a supplier to a large company or government buyer, then the experience of dealing with procurement will almost certainly be all about the contract. The process of winning the business may have gone through a Request for Proposal process which will have been designed to minimise risk to the buyer, squeeze costs and pass as much of the liability for anything going wrong to the supplier. Boxes may have been ticked, a scorecard system may have been put in place, and both sides play a game to seek to achieve a successful outcome for themselves.
As Chapter 5 on Capability explored, it is an utterly transactional process designed to depersonalise the decision, remove any value from an existing relationship and put the buyer in the driving seat. It demonstrates suspicion of the seller and an exercise of power by the buyer. Trust does not feature as a factor in this process, and so no one behaves in a trusting or trustworthy way. The goal for the supplier who enters this race is to win the business with as much margin left as they can achieve, while the buyer wants to pick a vendor who can credibly do the job as cost effectively as possible.
In many sectors procurement processes have moved on to some degree from this characterisation. There are other factors built in: looking at cultural issues – matching the way customer and suppliers work; quality controls are in place; environmental and social factors play a part. But in so many situations the fundamental process of buying and selling in large organisations remains unchanged.
We have met many companies who describe this soul-destroying process. The outcomes are rarely the best for the buyer or seller. Often the wrong thing is being procured –many vendors insist this is the case, but it is often difficult or impossible to provide this feedback before the buying decision has been made. The supplier, once they have won the gig, often then seeks to recover margin during the work through what are known as change notices. Since no one really knows what will happen when the work begins, any change to the original specification carries cost. This can be very profitable for the supplier as, having been appointed, they now have more power.
As importantly, collaboration between suppliers is not fundamental to this model. Vendors are hired in parallel with each other but are then expected to coordinate and collaborate. There is often nothing in the contractual process to ensure this will happen, and in many situations they are rivals for the customer’s budget. The incentives to blame each other when things go wrong are high.
Combining competencies
The second aspect of capability determines whether trust can be achieved. It requires a transformation from a transactional purchase mindset to one where the outcome is a combination of competencies between the buyer and seller. It’s not just about supplier/partner competency: the buyer also needs to have certain competencies for the seller to be able to do its job well. For example, if the buyer fails to make a timely decision, the seller may fail to provide them with what they need when they need it. If this happens consistently then this is not a mistake but an issue of competency on the part of the buyer. On the other hand, they may claim it is an issue of communication on the part of the seller. There are lots of reasons even in this simple situation where this can lead to blame or distrust.
In many cases, value is created by a combination of suppliers and partners providing some element of the overall value being created. Like ingredients in a cake, they provide much of what is needed and the buyer is the chef, combining these elements to produce the final product. Just by acknowledging this, the need for collaboration and trust becomes self-evident.
It's not that a classic efficient and process-driven supply chain doesn’t work. Of course it does; businesses have adopted this approach successfully for many years. The problem is that it is rapidly becoming less fit for purpose in a fast-changing world, where innovation and flexibility are critical. As business academics Peter Williamson and Arnoud De Meyer say in their book ‘Ecosystem Edge[CG1] [SM2] ’: “one of the most important advantages of an ecosystem approach is its ability “to foster co-learning and catalyse innovation.”[8]
This hinges on a strong sense of trusted partnership between those involved. The ambition should be to create behaviours which mean that those in the ecosystem will openly share ideas, respond quickly to events and work together to solve problems or approach opportunities. They trust each other. When things go wrong they know that there is a sense of team even among different organisations providing inputs into the final product, all with a sense of collective value creation.
In a complex supply chain situation, one way to establish an ecosystem mentality is to develop a Relationship Agreement with all the parties involved. See them as ecosystem members, not just vendors. The core idea here is to – as ever – make trust central to the process of finding and choosing the right businesses with which to work. Critically, it must also then be central to the way you work together, and your relationships becoming a fundamental part of the delivery process, with accountability and reward built in.
Supplier/partner checklist
Here is a checklist to consider as you appoint suppliers or partners. Of course, they need to be competent and the business case for their costs must be solid. But assuming several fulfil these criteria, choose trust as a key way to decide who to work with and how to underpin the value you will create together.
At selection
Discussion and dialogue are critical if you are to have the best chance of selecting a trusted supplier or partner. How people interact will be critical to the work together and so feelings and reactions are as valuable as so-called ‘neutral’ scoring criteria.
· Build into the selection process time to get to know each other, ideally tackling something together if this is possible given the type of work.
One way to do this is to find a pilot project that will both demonstrate value and provide valuable lessons for the main contract. Ideally pick something where the interdependencies can be seen and captured. For example, if you are appointing a consultancy to review some aspect of your business, see if there is a smaller part of the organisation where they can start. The idea here is to identify how you work together as much as what they do.
· Discuss the relationship as part of the dialogue about the project. Think carefully in advance about how you want the relationship to be, not just the functional delivery.
Consider scenarios where you will need to demonstrate trust as opposed to being contractual. For example, it is important to discuss how you will both be expected to behave if and when something goes wrong. Having an open and honest dialogue about this will show both of you if you will work well together. If you draft a Relationship Agreement, capture the conclusions of this discussion.
· If feasible, ask potential suppliers andpartners to work alongside each other in a workshop or project scoping exercise. Look out for collaborative behaviours. Ask yourself, when you see them in action, whom you trust most.
This is becoming common in many construction projects, where collaboration is key. One of the challenges here is to ensure the people who engage in the process are also those who will work on the project. Making sure this is the case should be part of the engagement criteria.
We worked on a project with a supplier where the team working on a project was entirely different from the one which had won it. The result was that none of them had any idea about the behaviours that had been demonstrated or promised at the time of the bid win – they were working to the contract. It was going badly, and when we showed them what had been originally promised, and the output from our interviews with those originally involved, they realised the problem and were able to resolve it.
· Identify the values and purpose of the supplier/partner and check whether these align with your own. If these are not in evidence, that tells you something. If you don’t have any, get some. Be clear about what matters to you and ensure this is true for the other parties too.
Identifying values is much more than confirming they have the right words on their website. Find evidence that they put them into practice. Gather stories and testimonials that they live these values.
Then do something even more difficult. Ask yourself: does your organisation live its values? This is a powerful question. Look for evidence that you have a set of principles beyond cost control. This is all about what will work in the real world when you are meant to be collaborating, and this exercise could prove to be a valuable way to ensure you are a high trust buyer.
· Consider how much you can place value on existing relationships and the degree to which trust already exists and has been earned. Build this into the buying decision.
Smaller organisations instinctively understand this. Where they have worked together with a supplier or partner, that relationship will determine future orders. But bigger ones often struggle under the weight of procurement procedures which focus on price-driven competitive quotes. Relationships are what will help the work together succeed; if these exist, they should be recognised and valued.
· Put in place relationship governance processes in line with the capability dimension and ensure those involved agree them as part of any negotiations.
Chapter 5 sets out ways to make relationship governance part of your work together, whatever the scale of the enterprise or project. The informal and formal processes outlined there are designed to provide a solid foundation for relationships. It is then important to track this as much as the practical delivery when you start to work together.
Working together
Regularly review the relationship in line with agreed governance processes. This should be a separate review to any ongoing technical ones.
As part of this, continually check in with your own team and your suppliers and partners. Ask the question openly: do you trust each other? Identifying any behaviours which damage trust will make mutual success more likely.
· As part of this review process, identify specific situations where trust has been under stress.
You can simply discuss together how these can be better dealt in future. In more complex situations, structure this into a workshop. Capture what you decide in a way that is shared and agreed.
· Include accountabilities for this in the process.
These must be mutual – it is not just about the supplier/partner demonstrating what you consider to be trustworthy behaviours. They can equally call you out for actions or decisions that can damage trust, and part of the behaviour of openness is to welcome this as part of the development of mutual trust.
· Publicly celebrate examples of great relationship behaviours.
Examples of great collaboration, mutual problem solving and trusting actions are wonderful ways to encourage more of the same. Often companies celebrate and communicate what their own people do, but not what is done by supplier/partners. If they are part of your ecosystem they are on the team – treat them as such.
· Make it clear that such stories are rewarded and form part of the award of future business.
There should be openly commercial benefits for high trust relationship building. The opposite can also be true – where consistently poor relationship behaviour is communicated and forms part of the overall assessment of the work.
You are all part of the same team
Every supplier or partner situation is different. This chapter lays out some important principles that can turn a transactional set of commercial arrangements into a truly collaborative ecosystem of suppliers/partners who trust each other. The benefits of this are enormous, especially where the parties have to work together in a complex way to achieve an overall outcome, or there is likely to be change and the need for agility and adaptation, and where the intention is to have long term, consistent relationships.
Supplier and partners are effectively an extension of your core business. That’s why developing a highly collaborative culture, with a strong sense of shared destiny, will create far greater overall value. Just as a customer trusts a vendor if they feel they have their interests at heart, so a supplier or/partner who knows the buyer cares that they are treated fairly and benefit from the relationship will give discretionary effort and do everything they can to help the buyer achieve success.
This requires a mindset shift from supply chain to ecosystem. A move from seeing supplier/partners as external vendors to people who are on the team. It requires everyone to choose trust.
[1] As told to the authors of the book by Philip King, then the UK’s Small Business Commissioner, March 2020
[2] This article sets this out in more detail: https://www.nytimes.com/2022/09/14/climate/patagonia-climate-philanthropy-chouinard.html
[3] For a fuller description of this see https://eu.patagonia.com/gb/en/our-footprint/working-with-factories.html
[4] For a full analysis of this see https://goodonyou.eco/how-ethical-is-nike/
[5] “Scandal: Inside the global supply chains of 50 top companies”, ITUC Frontlines Report, 2016
[6] A more detailed analysis of ARM can be found in ‘Ecosystem Edge: Sustaining Competitiveness in the Face of Disruption’, Peter J Williamson and Arnoud De Meyer, Stanford Business Books, 2020
[7] Retail Week, 11 March 2021
[8] ‘Ecosystem Edge: Sustaining Competitiveness in the Face of Disruption’, Peter J Williamson and Arnoud De Meyer, Stanford Business Books, 2020
[CG1]Reference here
[SM2]Sorted
[CG3]The meetings checklist is not identified as a tool and because there’s a lot of text here, I’d probably make this match that, especially not having it boxed out.
[SM4]Agreed - fixed
