Supply chains are becoming more and more complex – particularly “post” – COVID. As a result, we have many, many clients that are scrambling to secure both materials and services. Some are throwing up their hands and considering forming Strategic partnerships with some key suppliers. These are usually Large, complex relationships which come with their own set of challenges. Here are some common characteristics of these types of deals:
- Large or Complex Transaction (> “$10 Million”)
- Broad Scope – (Numerous if not ALL Business Units Involved)
- Many Stakeholders with varied Value Drivers
- Decision Making that goes beyond organizational SILOs
- Requirements Definition is Critical
- HUGE Business Impact
- Risk must be factored into Total Cost of Ownership Model
- Requires careful planning to maximize Value
- ADOPTION of the Solution is KEY to Realizing the Promised ROI
Large Complex Deals shift the focus from Pricing & Savings towards Value Drivers of Your “Customer” (e.g. IT, Facilities etc.) and their Customers (the “Business”). Here is a simple illustration:
This is critical because engaging ALL your key stakeholders before you enter into one of these arrangements is key. What was important two years ago is most likely not the case today. We have found that even companies that were extremely cost focused prior to COVID have shifted dramatically toward other Value Drivers and RELATIONSHIP. They realized that where they had mutually beneficial relationships with their suppliers, they were taken care of when “supply” was scarce.
Since Relationship is key, here are some things to think about:
- Relationships between customers and suppliers are key to the success of these
- Relationship maps and ongoing assessments will support this
- Active Relationship Optimization on both sides is required
- Consistent management of the relationship is required
- Successful Category Managers ensure strong and collaborative relationships with their suppliers
- Supported by performance metrics and end-user satisfaction measures
- Implement process and metric improvements during launch and throughout the relationship
- Practice full disclosure to the alliance partner – telling what you know when you know it and trusting each other to act on that information appropriately
- Look to resolve issues and prevent them from recurring – assigning blame is generally counterproductive
- Manage up, or others will manage down – giving people the information they need so they don‘t have to micro-manage
- Escalate and notify jointly and explicitly – documenting the issues where you do and don’t agree
- Commit to the prime objective that is the success of the alliance – protecting your company’s interest at the expense of the partner works against the aims of the improvement journey.
When not done right, many of these types of deals fail. Here are some common causes:
- Unclear Goals & Objectives
- Changing Objectives
- No Formal Decision-Making Process
- Lack of Oversight
- No Mitigation of Risks
- Lack of Proper Governance
- Lack of User Involvement
- Failure to Communicate
- Incorrect Business Analysis
- Wrong Skill Set
- Unrealistic Time / Resource Estimates
- Lack of Trust
- Lack of Top Management Support
- Poor Up-Front Planning
- Lack of Mutual Benefit
And on and on . . . . . . Does ANY of this sound familiar? I bet we have all been part of project or a relationship that went south because of any one of the causes noted above. So what do you do differently? Here are a few thoughts:
- Establish clear objectives
- Outsource projects to specialists that have experience in sourcing LCDs
- Keep focus on long-term results – don’t get lost in the deal
- Performance metrics are developed beforehand and are aligned with objectives / customer needs
- Implementation is supported before the deal is made
- Decision not made on cost solely – look at whether supplier is a good business partner
- Successful negotiation outcome as a viable solution for ALL parties affected
- Supplier Value Drivers MUST be Met Too!
These types of deals may very well be our new normal. So review some of the above before you enter into these deals and remember – Large Complex Deals are Just That!
Let us know what you think and join in the conversation . . . . . . .
