Many large customers devote most of their attention to the 20% of suppliers that represent 80% of the spend.
Atlanta, GA, February 9, 2016 (Newswire.com) - I’ve had the pleasure of working with a number of large and small companies throughout my career. About 10 years ago, in the midst of running another company I started, my clientele consisted of both small businesses and Fortune 500 companies. One of the many things I learned then, and continue to see now, is some customers truly don’t understand their suppliers.
I’m not referring to the notion of empathizing with the troubles of a supplier, but rather knowing who their suppliers are, what they do, why they do it and what they truly want. What is common, especially for large customers, is the practice of the 80/20 rule; many large customers devote most of their attention to the 20% of suppliers that represent 80% of the spend. While I applaud the special attention given to those ‘strategic’ suppliers, it’s the other 80% – the long tail suppliers – that hold the key to a customers’ ability to operate more efficiently and maximize their supply chain.
To operate at a high level along the entire supply chain, customers should clearly understand what they have in their supplier pool. In my experience, there are typically five reasons why customers don’t understand their suppliers.
1. They don’t have correct supplier contact details
One might be surprised to learn that many multinational corporations do not have a proper phone number, email address or name for the correct contact at many of their suppliers. Historically, the focus for many customers has been on the larger, more strategic provider. But it’s often the hundreds or thousands of smaller suppliers that prove vexing because there are inadequate resources or technology in place to properly engage them. When contact details are inaccurate, it’s almost impossible to efficiently interact with suppliers.
2. They don’t properly communicate with suppliers
Even for those customers that have accurate supplier contact details, it’s the communication that can prove problematic during an engagement. In my 25 plus years as a professional, I’ve seen both good and bad communication. Elements of bad communication – especially as it relates to suppliers – include:
- Communications that are too long - 4-page emails are too long. Few, if any, will read it or absorb what’s being read.
- Communications without a call to action - It’s unfair to ask the recipient of an important message to take a particular action without clearly explaining what the action is.
- Communications written in a punitive tone - Requests are conveyed in a way that can come across as threatening and offensive (often unintentionally).
- Communications that don’t take responsibility for the end result - Communications are often sent in an effort to simply ‘check a box.’ Rather than taking the ‘we’re successful because we sent the communication,’ approach, customers should adhere to a ‘we’re successful because we achieved the desired results after sending the communication’ approach.
To properly communicate with suppliers, customers should:
- Look at communications as a long-term, continuous proposition. Communicate now, communicate often and communicate effectively.
- Tell a story. We all want to know the who, what, when, where, why and how of any story. Customers should communicate with suppliers the same way they might communicate with customers.
- Be positive, engaging and succinct. Say what needs to be said, in the most encouraging way possible - but get to the point. If customers communicate more regularly, brevity will be appreciated.
- Engage the services of a real communicator. Although the primary message may come from subject matter experts dealing directly with suppliers, the communication itself should be written or reviewed by professional communicators prior to distribution.
3. They don’t understand how negative news truly impacts suppliers
I can’t imagine any supplier being thrilled with the prospect of having their payment terms converted from 30 to 60 days. It’s not so much the change in terms but the idea that customers believe suppliers won’t mind the change. This can lead to other changes that are seen as positive or neutral by the customer but are inherently harmful to the supplier. Admittedly, there are instances where customers must make tough choices that may negatively impact some suppliers. When that becomes necessary, customers must understand it’s not good news for their suppliers and should approach topic in a way that acknowledges the pain and offers a solution.
4. They don’t know what suppliers really want
In a recent blog, I mentioned that most suppliers prefer ACH payment to paper checks by almost 3 to 1. Although the responsibility here to transition to electronic may reside mostly with the supplier, are their customers aware of their preference? If so, are customers able to help their suppliers transition? Moves like this will, in turn, save both parties the expense of processing paper checks. Furthermore, customers committed to their suppliers' success will help ensure they attract the best suppliers available.
5. They don’t commit resources to working closely with the long tail suppliers
It’s understood that customers devote resources to their strategic suppliers. That makes perfect sense. What customers often miss is the opportunity to truly know the 80% of suppliers that, although representing only 20% of spend, can still trigger a significant percentage of exceptions. The beauty in developing closer ties with the 80% is the customer does not have to do it all themselves. Creating a supplier council that helps address supplier-customer issues is one of many steps customers can take to engage their entire supplier base more efficiently.
There are many companies, large and small, that do an excellent job of engaging and understanding their entire supplier base – regardless of size. In addition, they may use companies such as Lavante, Apex Analytix or PaymentWorks to help them gather important supplier information in order to better engage them.
Many customers are doing better at engaging their entire supplier base but too many continue to lag behind and miss hidden opportunities to maximize efficiency in their supply chain.