Procurement divisions have always played a key role in industry, whereas the strategic value of an organization's relationships with its external stakeholders, especially its suppliers, has often flown under the radar...
September 04, 2019 . 5min read
There is certainly no lack of academic theories to describe the customer-supplier relationship and the agreements typically entered into by the two parties. The conventional theories posit that agreements exist to encourage both parties to cooperate, to make sure that they do, and to sanction them if they don’t. When the customer-supplier relationship is approached as a partnership, however, agreements transcribe the parties’ desire to cooperate and provide a framework within which they can earn each other’s trust over the long-term.
The partnership model appears to be the most relevant to today’s businesses, especially on high-tech markets like infrared, where trust and innovation—the keys to performance—are closely intertwined.
There are some very real benefits to approaching your suppliers as partners. Below we will explore why this is particularly true on the infrared market.
1- Lower transaction costs
Transaction costs—the indirect costs of sourcing suppliers, comparing prices and quality, negotiating and drafting contracts, and monitoring the quality of the products and services delivered—cannot be avoided. The more complex the transaction, the more people will be involved and the longer it will take, all of which impact costs.
Uncertainty is part of any transaction. Mistakes can and do happen. And you always invest time and money. All of these factors can reduce efficiencies and lower performance.
A partnership is different. It is about more than a transaction. It means working with your supplier for the long term in a more or less exclusive arrangement. This type of relationship saves on sourcing costs (selecting, testing, and approving suppliers) and reduces the amount of time spent.
This is especially true on the infrared technology market, which is characterized by advanced know-how and specific security-related requirements (export-restricted countries, standards like ROHS and REACH). These factors can push transaction costs through the roof. Here, efficient long-term partnerships can mitigate transaction costs and free up both parties to focus on the desired result: a high-performance product.
2- Focus resources on key competencies
In economic terms, a customer-supplier partnership involves coordinating competencies and resources and sharing the risks and responsibilities of developing and manufacturing complex products, components, or features.
When resources are coordinated, transaction costs are lowered. And non-essential resources that gravitate around a new product development project are eliminated. The available resources are allocated to tasks vital to the project. If you are trying to determine the best thermal sensor for your future product, it is more efficient to focus your efforts on engineering and other technical tasks, for example. This will speed up your new-product-development cycle and make it more efficient.
3- Trust boosts performance
When you partner with your suppliers, the trust you create—and it goes both ways—positions both parties to deal more effectively with the many situations that arise when working together on a project. From technical issues to failed tests, whatever happens, the best way to face problems is together. Partners who trust each other can overcome the doubts that tend to emerge when something goes wrong during prototyping or testing.
Last—and certainly not least—trust positions both parties to imagine a future with less uncertainty. Partners can navigate fast-paced innovation projects with greater ease and effectively envision longer-term technology roadmaps, both of which are keys to performance on high-tech markets like infrared.
So, approaching your customer-supplier relationships from a partnership perspective is a true strategic advantage. Whether you start with the theory, trusting that partnerships will result in more flexible, better performing relationships, or take a more pragmatic approach—partnerships lower costs—, trust is the key to successful collaboration.