What It Means to Be a Partner
Partnerships benefit both parties, creating a win/win relationship that gives both parties the opportunity to achieve success beyond what they could do alone. Partnerships are founded on an abundance mentality in which the partners help each other improve because one side’s success benefits everyone involved. True partnerships offer many advantages:
World-class pricing and competitiveness
Greater profitability for both parties
More flexibility and agility
Enhanced quality
Increased return on assets
A feeling of teamwork and success
Pride in results
Collaboration is a popular trend, but collaboration stops short of a true partnership. The technical definition of collaboration is “the act of working with someone to produce or create something,” in other words, working together toward a joint outcome, but working together may not provide a well-balanced outcome resulting in a win for both sides. Collaboration is certainly a worthy thing, but partnerships provide world-class success for the long term.
Marriage Versus Playing the Field
The best partnerships involve a small number of very close relationships. For instance, many companies have several suppliers for a given material category in an attempt to reduce costs through competition or to reduce risk through redundancy. Unfortunately, this introduces variation, which often cancels out the benefits of cost reduction and risk mitigation. The key in any kind of partnership is to understand that the other party is human and has human desires for success, family, peace, and opportunity. Treating them as partners rather than as opponents yields long-term relationships and spectacular results.
The foundation for partnerships is trust, relationship, and commitment. As Alan Weiss says in his book Million Dollar Consulting: The Professional’s Guide to Growing A Practice, trust is the firm belief in someone’s reliability, truth, credibility, and conviction.1 Trust comes from
Knowing that the other party has your best interest in mind as well as their own
Understanding that the other party has the technical capability to do what the partnership needs done
Knowing that when the going gets tough, both partners will work together to overcome the difficulty
Believing that the partner is committed
Knowing your partner will treat confidential information appropriately
Trust is gained by spending the time with your partners to get to know them and understand their background, experience, capability, and past performance. As in any marriage, if trust is lost, it is very difficult to get back. I visited supplier partners frequently, had lunch with other inside company executives, occasionally played golf with them, and went to their location to get a feel of how they perform.
It is important to take the time to set the foundation for the relationship by reaching conceptual agreement on mutual objectives and by setting measures so that both sides know how they are doing. Conceptual agreement is more than just agreeing on a few points; it is a mutual understanding of objectives and measures.
Supra Products was a small company that made lockboxes used by real estate agents, homeowners, car dealers, and for industrial applications. The company had been in business for many years and grew nicely during that period, but margins were small and competition was tough. The company then decided to pursue a world-class manufacturing philosophy including partnerships with suppliers, customers, and employees. There was a significant change in culture as the company sought out win/win opportunities for all of the stakeholders. The results were nothing short of spectacular:
Growth of over 400 percent in five years
Profit before tax growing from 0 percent to over 20 percent
Inventory turns over 15
Employee productivity improvement of 77 percent
Eventual sale of the company for five times its starting value
One of my better clients, Alaska Communications, implemented a supplier partner program over a two-year period. They recently announced a 12 percent stock price increase they attribute partly to their partnerships. My client increased margins, improved service levels, and significantly improved their cash flow. At the same time, their supplier grew their business significantly and increased their own margins. Both companies’ performances rose to world-class levels and the value of their businesses rose. The return on investment (ROI) on the partnerships was huge.
Reaching Out and Reaching In
It’s time to expand our notion of partnerships to include relationships with suppliers, customers, and the community, as well as relationships within the company.
For an example of an external relationship that is clearly not a partnership, let’s look at Wal-Mart. As part of its campaign to be more competitive in the marketplace, Wal-Mart puts pressure on its suppliers to cut costs.2 While increased sales at Wal-Mart could benefit the supplier, for the supplier, the lower prices mean lower profitability. Additionally, the change in how the supplier presents its brand to the marketplace could damage its own marketing efforts.
Internal partnerships can bridge the gap between departments. In many companies, functional silos separate departments such as operations and sales, operations and engineering, and operations and accounting. Departmental goals may conflict with the partnerships each department is trying to form, especially with outside interests.
For instance, at Alaska Communications, the purchasing department was trying to improve supplier relationships by paying bills on time, while the accounting department had a conflicting goal of improving cash flow by stretching out the bill pay process. Failure to meet supplier commitments has a tremendous impact on a company’s ability to develop external partnerships that reduce costs and improve service. Breaching those walls by transitioning from a collaboration model to true partnerships between departments allows companies to achieve levels of performance beyond anything they’ve previously accomplished.
Internal partnerships also involve the company and its employees. Open-book management and empowered teams are two methods that have helped many companies build strong partnerships with their employees, which can drive amazing performance.
What Does a Partnership Look Like?
Partnerships can have a dramatically positive impact on business value. Partnerships can in fact earn billions of dollars. A survey of 435 top automotive suppliers found that the Big Three (Ford, General Motors [GM], Ford Chrysler Automobiles [FCA]) had weak supplier relations, costing them over $2 billion in sales in 2014.3 Those relationships were based on pressure to cut costs using adversarial approaches. Suppliers feared retaliation if they did not comply.
Management wanted to improve relationships and build partnerships, but the internal buyers were trained to negotiate tough deals and cut costs wherever possible. Short-term results, key metrics, and quarterly reporting drove the buyer behaviors.
Toyota and Honda, on the other hand, had good supplier relationships and strong partnerships and thus achieved many of their cost targets through “respect for the individual,” a basic tenet of the Toyota Production System. Their supplier partnerships were based on trust and respect and focused on total cost of ownership that went far beyond part price.
Since then, Ford has changed their strategy in purchasing to more of a collaborative working relationship, although still short of a partnership, with their suppliers. Savings is not wrung out of the profit margins of the suppliers, and relationships are much more long term. Procurement is partnering internally with design, marketing, sales, and product development to communicate with supplier partners to help them allocate resources to the benefit of both parties.
Culture that supports partnerships starts at the top, with a focus on revenue and customer satisfaction over cost reduction. Often, the cost reduction will come as a result of the partnerships in ways you never expected and that far outweigh the results of normal cost-reduction activity.
In this book, we explore how to develop and maintain partnerships with suppliers, customers, internal departments, employees, and communities. Partnerships are the foundation for world-class performance and provide working relationships that are long term, highly beneficial, and attractive to employees, investors, and other stakeholders. Partnerships feel good, like being on a team of all stars whose performance is beyond belief.
References
Putre, L. 2015. “Weak Supplier Relations Costing Big 3 Automakers, Nissan Billions: Survey.” Industry Week, May 17 (accessed July 13, 2016).
Serena, N., and P. Ziobro. 2015. “Wal-Mart Ratchets Up Price Pressure on Suppliers.” Wall Street Journal, 1 April. A1. Print.
Weiss, A. 2016. Million Dollar Consulting, 41–45. New York: McGraw Hill Education.