This week our audio comes from Acquire Procurement Services, a consultancy based in Australia specializing in establishing and re-negotiating contracts across sectors. Their video is titled 'Why do we treat employees and suppliers differently?' and is available on their YouTube channel. In it, they draw a contrast between the information companies share with their employees and how they handle sharing with suppliers who might perform the same or similar functions on their behalf.
You can listen to the podcast on the PI Window on Business Blog Talk Radio channel or on our Sound Cloud page.
By comparing the kind of relationships we have with our suppliers and employees, Acquire Procurement makes an interesting point about the need to become more collaborative with some of our suppliers. This is especially true given the increased percentage of corporate revenues being spent with suppliers. According to research by Proxima Group in 2014, in a trend they have labeled corporate virtualization, companies are spending an average of 70% of their revenue with suppliers – and not all of it is being spent on materials. As a result, we are outsourcing ever larger percentages of our revenue – even when we don’t call it outsourcing.
There are lots of different reasons to outsource. Third party service providers may specialize in a given process or service or they may be able to perform it more cost effectively. Regardless of the reason, you are taking a function that used to be performed in house with full communication and oversight and putting it on the other side of a wall, expecting it to flourish based on the capabilities of the services provider alone. The important thing to remember is that the supplier still needs information and visibility to ensure that what they provide continues to meet the granular or day to day needs of the organization.
Acquire also made a valid point that if we think we are shielding our secrets from the market by holding suppliers at an arm’s length, we’ve missed the reality that greater employee turnover sends information out the front door just as rapidly as collaboration might allow it to leak out the back.
In the book Jon and I worked on for the better part of this year, we dedicated an entire chapter to supply base collaboration. One of the points we raised is that collaboration is not something that can be done in name only. You have to be collaborative in thought as well as in deed to reach the desired outcome. If you make the decision to outsource a process, and performance is collaboration dependent, you and the supplier both have to put something meaningful on the line to get the job done.
Collaboration and outsourcing don’t always go hand in hand, but when they do, companies need to be open to the idea that the supplier may take a different approach than what they’ve done in the past, and may need more information in order to support that approach. Procurement should be open to the idea that suppliers will either recommend changes or find their own way to satisfy the requirements.
Kate Vitasek, the author of the Vested Outsourcing series of books, calls this the Outsourcing Paradox. It is the idea that we are outsourcing something because a suppler can do it better, cheaper, or faster, and then we tell them what to do. If they are so unskilled that they need step by step instructions from us, we have surely chosen the wrong supplier or the wrong category to outsource.
I also addressed this idea in a recent article on Design News – pointing out that even in the most collaborative of relationships the supplier is still not your friend. All interactions are still a business deal above all else. And if that means a supplier needs to push back a bit on requirements or process in order to preserve profit margins, we, as procurement professionals, need to be willing to listen and consider their expertise.
Which brings us back to what you might call ‘the employee test’ as suggested by Acquire Procurement in the audio we heard. If you are dealing with a supplier, and have anything other than the most transactional relationship, ask yourself – is this how I would handle this situation if the work were being done by an employee or a colleague? If the answer is no, you have some thinking to do. You’ve either hired the right employee or you haven’t and you’ve either selected the right supplier or you haven’t. The whole reason for doing all of the vetting up front is so that you can extract more value in the long run. Otherwise, you’re just holding yourself back.
Do you think you could pass ‘the employee test’ with your outsourced or collaborative supply partners? What opportunities are being lost for the sake of keeping a wall up between you and them?
If you have any thoughts or feedback about this episode, you can reach me directly on Twitter @BuyersMeetPoint or on LinkedIn or by visiting BuyersMeetingPoint.com. Please also listen to some of my other procurement perspectives podcasts, available on Blog Talk Radio and Sound Cloud.