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Executive Champion: The Benefits of Supplier Partnerships

Partnering with vendors takes work, but it can be worth the effort.

One of my business heroes is Gil Minor, the chairman of Owens & Minor Inc., a medical supply and services company based in Richmond, Va. Minor's objective is to lower the costs of products and services for customers while increasing O&M's margins. It's an inspired partnership vision. In most industries, however, suppliers aren't partners, but merely distant parties to negotiate with for the best price.

The idea of a supplier as partner might sound like a fantasy promoted by academics who have never experienced the tough conditions of real business. But there are benefits to having a collaborative, collegial relationship with your suppliers -- and I mean all suppliers, from the firm that provides logistical services to the hardware company that sells you PCs.

In today's networked economy, few companies do everything on their own. Suppliers help companies build better products and services. Indeed, could Dell maintain its build-to-order business model without supplier partnerships?

Evidence supports the fact that minimizing suppliers reduces costs. Dealing with too many companies creates genuine overhead. Even players like Ford are moving to a strategy that uses fewer, but closer, supplier relationships.

A partnership can give suppliers greater visibility into how you operate, enabling you and your suppliers to collaborate by reducing costs, improving service and quality, and even innovating.

And as more work gets outsourced, a company's dependency on suppliers will increase. Holding a critical supplier at arm's length doesn't work; you need a trusted partner to ensure quality of performance. But what does a partnership look like? Consider these questions, and you'll get the idea.

Do you and your suppliers operate with transparency concerning processes and costs? Companies tend not to be transparent. But in truth, there is little for a company to keep secret. Most companies compete on the basis of how they operate rather than magic formulas.

By being open, by showing suppliers how you operate and your cost structure -- and by expecting the same from your suppliers -- you set the stage for collaboration that can improve everyone's performance. By seeing how a supplier operates, you can also affect the design of the product that you buy.

Do you and your suppliers share an interest in one another's financial performance? A real partnership requires all parties to benefit in real terms. Business benefits usually mean profits. And transparency is important, but then -- as Minor did -- establish financial objectives, such as lower costs for you and better margins for your suppliers. The real work involves redesigning the business processes that you share -- procurement, invoicing, supply chain management and service delivery -- to meet those financial objectives.

When a breakdown occurs, do you argue about who is at fault or work to solve the problem? The natural tendency to assign blame doesn't solve problems or ensure that problems disappear. And few technology problems are the fault of only one party.

In a true partnership, parties work together to understand a problem's source, agree on the fix and decide who is responsible for taking action. Solectron, a high-tech device manufacturer, tracks delivery breakdowns and meets regularly with customers. By tracking breakdowns, you can also discover the source of systemic operating problems, such as why certain services are always late or cost more than expected.

The bottom line: Partnerships take work, but they can also deliver more value.

James Champy is chairman of Perot Systems Corp.'s consulting practice and head of strategy for the company. He is also the author of the best-selling books Reengineering the Corporation, Reengineering Management, The Arc of Ambition and X-Engineering the Corporation.

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