Building Relationships and Driving Innovation
As mentioned above, savings come in different forms; the approach is to bargain hard for price reductions. A newer approach is to build relations with suppliers to jointly pull costs out of the product or service vices.
Examples of supply managers building these relationships are occurring in many industries. For example, food producers are realizing there are benefits to taking a new approach to supplier relations. Most traditional foods are sold in a very competitive market, and the classic standard food products are being commoditized and profits being squeezed. The traditional approach would be to negotiate hard with suppliers and squeeze their profits. The newer, more progressive, approach is to develop strategic partnership and open innovation between food purchasers and selected suppliers of ingredients, packaging and equipment to produce breakthrough solutions and sustainable growth.
Working with suppliers, certain food producers have developed strategies to: optimize the formula costs, select more efficient raw materials, improve production processes, reduce processing time, obtain higher yields, or achieve a better shelf life and stability. The outcome of these relationships is the ability to produce traditional food products with better profits. One example of this collaboration is a project undertaken by a major food producer, Cargill Corporation. Cargill created a field school for farmers to increase yields and improve quality, resulting in higher incomes. Farmers are trained in good and safe farming techniques. The program focused on growers of various oil seeds, a vital part of Cargill’s business.
For these relationships to work, both the buyer and supplier must agree to acceptable paybacks from their investments so that each realizes a positive gain. If the suppliers’ strategic intent is to be the customer of choice, then they need to provide necessary technical infrastructure to assist the buyer. With both parties cooperating, a climate of trust emerges between the parties setting the stage for innovative ideas. In the food industry there is a trend among affluent consumers for convenience foods that are healthy. Many affluent consumers are strapped for time, but want to enjoy the convenience of reduced preparation time without sacrificing appealing taste and healthy fares. Suppliers can contribute novel ideas about techniques that preserve taste with innovative use of natural ingredients, allowing the food producers to tout the health benefits of their products as well as the convenience. These convenience items also enjoy higher markups, producing greater profits for both parties.
The twenty-first century professionally trained food industry buyer is looking to attract, retain, and maintain the best suppliers in areas such as product formulation, new product development, research and innovation to help their firm obtain competitive advantage. Accomplishing this requires much more than negotiating the best price. The results will be new and innovative offerings for the purchaser’s company which are gained by tapping the creative talent of their supply base. Given the global nature of the food business, such partnerships will involve suppliers worldwide.