A global study of over 400 companies by US-based research firm SCM World shows that deeper relationships with service providers are a leading contributor to the overall success of companies, especially those involved in the supply chain.

Kevin O’Marah, SCM World research head and Sr. Research Fellow, Stanford University, speaking at a recent SAPICS Professional Development event says, “As with most things in life, rich rewards are the result of careful investment. Also, if your service provider’s relationships are purely transactional, disappointment is inevitable.”

The study revealed that companies from around the world, particularly in Europe where supply chain practitioners are at the top of their game, are moving towards engaging with fewer service providers with whom they enjoy deeper engagements.

“The key to success in relationships with service providers across the entire supply chain, such as consultants, technology firms, logistics specialists and contract manufacturers, lies in the parties embedding themselves in each other’s operations in a mutually beneficial manner.”

“When you find someone you like and they are a good culture fit for your business, invest in them and you will get a lot of payback. Trust is key.With a truly collaborative relationship, everyone learns faster and things start working better far more quickly, because decisions are not held up by internal processes or consulting legal all the time. However, if your relationship is purely defined by an SLA, don’t be surprised if you get fired!”

Rules of engagement: Beyond SLAs

Regarding methods of engagement, the study showed most of the usual practices still applies. However, the key finding was that performance trackers such as service level agreements (SLAs), key performance indicators (KPIs) and competitive sourcing processes (RFPs) need to be employed in a positive way as part of a successful collaborative relationship.

“An engagement with a service provider needs to be managed as a programme, not as a purchase – so merely tracking an SLA simply won’t do.”

“Most firms in South Africa ‘buy hard’ meaning that they generally don’t engage deeply with service providers – and are reluctant to listen to the advice of their expert service providers.”

“According to the study, the most satisfied companies enhance their service provider relationships by paying attention to things like governance structure and conducting strategy or innovation workshops upfront on an on-going basis. Many of them also maintain project management offices to ensure their substantial investment is managed properly.”

“In addition to the tip on forming culturally-sound, collaborative relationships, the kind where representatives of each company are deeply invested enough to fight on the other’s behalf, it is absolutely critical to be humble enough to receive good advice.”

“Listen to the specialists! After all, you have engaged them to do what they do best so that your company can get on with doing what it does best –so, benefit from their experience.”

A few more keys

“Avoid a short-term approach. Anyone who’s not in it for the long run almost always ends up giving problems.”

“Work on communication – especially with well-meaning vendors who truly believe they can do what they promise in a certain time frame.”

“It is important to share forecast data and other business information in a way that helps your service providers to serve you better. Don’t surprise them. And develop an environment in which people freely raise issues and table creative ideas.”

O’Marah concludes, “The best supply chain success stories are built on a simple foundation:  keep your word and deliver on your promises.  By treating the other party’s business as if it were your own, the relationship can only bear good fruit.”