Commonly in negotiations or when establishing new a new business relationship you will hear or use the phrase “win-win”, but in an increasingly competitive market do such relationships really exist?
Some believe that a “win-win” relationship means they have left something on the table and that they haven’t achieved the optimum outcome for their business. In fact, many would go further, insisting that their suppliers experience a level of pain in winning their business before they can feel comfortable that they have achieved a good result for their own business.
If we define business success purely in terms of profit, then there are a number of factors that can influence the success of each party in a business relationship. To appreciate these fully, it is important to understand the key business drivers of not only your own business, but also those of the suppliers in which you rely. Once you understand these drivers you are in a much better position to explore alternatives and develop strategies that are not only beneficial to your business but also truly benefit the suppliers you partner with.
Sales volumes, costs of doing business and ultimately profitability are impacted by any number of factors in addition to the direct cost to the supplier of the product or service in question or the price you ultimately end up paying for that product or service. Some examples of other contributing factors include;
· Utilisation of resources
· Delivery performance
· Production scheduling
· Lead times
· Material substitution
· Customer and product support
· Design for manufacture considerations
· Economic order quantities
· Payment terms
· Inventory holdings
· Freight & Packaging
· Administration & order processing
In addition, there are a number of value-add factors that businesses can explore to deliver further benefits, including;
· Networking and joint marketing opportunities· Product training
· Joint product development
· Sharing of best practice systems and business processes
· Business referrals
A purely transaction based purchasing approach of beating a supplier down to their lowest price, or the widely adopted approach of getting three prices to supposedly ensure you have received the best deal fail to take these factors into consideration. While they may yield some short term benefits for one party in some cases, they do not offer the same sustainable opportunities and benefits for both parties that can be achieved through a more collaborative approach.
When executed effectively, a more strategic approach to procurement and resultant supplier relationships will deliver benefits and profitability over and above that which could be achieved through a purely transaction based purchasing approach, benefits for both parties that result in more collaborative relationships that drive sustained performance and open up further opportunities for improved profitability and mutual gain...... a true “win-win” relationship for all concerned.