If category management is about anything, it’s about supplier engagement. Organizations that take a category management approach to their business create category plans for the specific purpose of developing spend strategies that in turn create huge value in the form of reduced product costs, increased rebates and marketing development funds, reduced operating expenses via process improvements, increased revenues through more effective collaboration and other key value drivers.
Another key benefit of having a category strategy is that it helps the buying organization determine which suppliers to partner most closely with strategically. But even for those that have their category strategy in place – and especially for those that don’t – the decision is still a difficult one. So here are five things to consider that I believe are critical as you begin down the path of selecting your most important strategic supplier-partners.
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- Profitability – Profit is key for any organization and its critical to invest your time in suppliers who make you more profitable, not less. This generally means suppliers who have made disproportionate investment in your organization in the form of product costs, rebates, and marketing development funds. It’s also impacted by how strongly you can grow revenues with a given supplier, which leads to the next key consideration.
- Brand Strength – It’s important to spend time with suppliers whose reputation, brand and selling resources can help generate significant revenue for your organization. The supplier’s brand should be one that you are proud to be associated with and one for which you will be willing to make commitments. These commitments inevitably come with some degree of compromise with respect to competing brands you may also sell, so choose wisely here. And to the degree these decisions create tension among your key suppliers, that’s not necessarily a bad thing. Healthy tension can serve to make those outside your strategic circle work harder to get on the inside, and in turn make those on the inside work harder to maintain their position.
- Strategic Alignment – To state the obvious, when you are sharing a rowboat with someone, it’s important that you have the same destination in mind. Same thing goes for supplier partnerships. Before investing significant time and energy with a given supplier its critical to ensure you are strategically aligned…that you are targeting the same customer verticals, well equipped to sell their solutions, etc. Trust, communication and transparency are critical here for they are the only ways to determine if you are truly aligned and give you the best chance to attain your objectives.
- Innovation – The ability to innovate has become table stakes in today’s world. Whether it’s through new product technology or new ways to service the customer, choosing a partner that is creative and innovative in their approach is essential. If I’m choosing a partner to align with over the long term, you can bet I want to know that their level of commitment to innovation is high, and that they are able to execute to those new ways of doing things, which leads to the fifth consideration.
- Operational Capabilities – It’s one thing to have great ideas and strategically align with a supplier, it’s another thing to be able to execute well together. This includes not only long-term strategic project planning and execution, but also doing all the things that are necessary day in and day out to keep your mutual customers satisfied. It’s worth taking time to review your history with potential strategic supplier partners to see if together you have what it takes operationally to be successful.
When it comes to choosing your most important strategic suppliers, these 5 elements are not necessarily the only ones to consider. For any given business there may be others that rise to the top. But the punchline remains the same. Our time is the most important resource we have, so it follows logically that we must choose our most important supplier partners wisely. The rewards for those that do so can be huge, as are the opportunity costs for those that do not.