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Supplier Collaboration: How to Make it Work

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The good news: Buyers and suppliers in a recent study had very similar — and largely positive — views of their relationships. Both ranked them highly in matters of trust and cross-functional engagement, for instance.

The not-as-good news: Survey participants were less sanguine about these relationships when it came to actual execution.

“The research reveals close alignment between buyers and suppliers on the relative strength of most dimensions,” reported McKinsey & Co., which, along with Michigan State University, conducted the study of 12 major consumer goods companies and many of their strategic suppliers. “It also shows a clear drop in perceptions of strength as the discussion moves from theory to execution.”

This disconnect matters because McKinsey said it has found that companies with “advanced supplier collaboration capabilities tend to outperform their peers.” Yet, many organizations find it difficult to collaborate closely with their partners.

What can be done? McKinsey laid out 8 best practices to help foster collaboration:

  1. Identify suppliers that offer unique joint opportunities to create and retain significant value.
  2. Align strategically with these partners to define joint objectives.
  3. Adopt a methodical and structured approach to define the scope, pace and targets for joint projects.
  4. Define simple, clear value-sharing mechanisms, and align incentives of the cross-functional team accordingly.
  5. Allocate the appropriate resources and build the required infrastructure to support the program.
  6. Create a governance model focused on performance, implementation tracking and hardwiring supplier collaboration into core operational processes.
  7. Foster a culture of proactive communication, transparency, consistency and knowledge sharing.
  8. Invest in building world-class organizational capabilities to ensure sustainability over time.

“For any organization seeking to improve the performance of its procurement practices, supplier collaboration can no longer be considered a nice-to-have,” McKinsey concluded. “As companies reach the limits of conventional purchasing practices, further progress will require a new approach based on close relationships, cross-functional engagement and the shared pursuit of new value.”

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