Added Value

Since the quality movement began in the 1950s, the bar has been raised continually. Over the years, as customers adopted programs like continuous process improvement, benchmarking, total quality management, and the like, they have begun expecting their suppliers to do the same. To be acceptable today as a supplier partner, you must match the quality and business process initiatives your customers are using. To help achieve lowest total cost, you must reduce cycle time to market and seek supply chain innovations that eliminate redundancy and improve buyer-supplier integration—throughout the life cycle from product development to purchase to after-sales service.

Yet it is no longer enough simply to have a continuous improvement orientation or an internal quality program. “These concepts have been out there for a dozen years,” says Bonnie Keith. “In the leading-edge companies these are now expected. We don’t talk about quality improvement anymore; we talk about Six Sigma performance. Companies like GE, Allied Signal, Motorola, and others have adopted Six Sigma and are expecting their suppliers to apply Six Sigma, too.”¹⁹ Of course, you add value not simply through Six Sigma techniques (or Lean Six Sigma) but by consistently behaving in ways that drive Lean Six Sigma performance internally and throughout the supply chain (upward to your customers and downward to the suppliers). Cycle time compression is expected. High quality is expected. As Bonnie Keith says, “In today’s marketplace, quality is a given. There is much, much lower tolerance for getting something that does not meet the requirements. Fifteen or twenty years ago buyers were inspecting constantly. That’s shifting now because we expect suppliers to do the quality inspections. Give it to me the way it’s expected, when it’s expected, and don’t surprise me.”²⁰

Another way suppliers can add value is by bringing new ideas to customers, by demonstrating a commitment to continuous innovation and idea sharing. Beyond cost-saving ideas, customers are looking for ways to improve their business processes, find improved materials, improve maintenance, make better use of technology, and discover new technologies or methods that will add value to their business. Safeway’s Greg Schwartz said, “It’s always nice when a supplier comes to you with something new—a new process, way of doing business, product, equipment, or technology that allows you to be the first to do something in a marketplace, which in turn enables you to gain a competitive advantage.”²¹ For Bob Douglass at Triangle Pharmaceuticals, the key is choosing suppliers who are willing to be part of the new product development process. Not all of them are. The ones who will partner with customers to develop new products and bring new ideas, technologies, and perspectives to the table can enhance the development process and the resulting new products. Through their differentiating behavior, they create an insider’s position for themselves as partners in the supply chain.

Supply chain consciousness begins with suppliers’ willingness to be transparent with buyers about their own costs. Paul Seibold tells an interesting story that illustrates this point:

A very large company was in the market to buy services. Normally, they would put out an RFP [request for proposal], bring the suppliers together, and explain what they wanted, then allow the suppliers to bid, and so on. Instead, they decided to do what they called “target engineering.” They met with each potential supplier individually and asked them a series of questions. If they felt “selling pressure” from a supplier or if a supplier was reluctant to divulge its costs, that supplier was eliminated. It came down to one supplier who was very open, who connected well culturally, and who was transparent about its pricing, and this company got the deal. The buyer wanted this relationship to last a long time, so they invested in building the relationship, and this was for a straightforward commodity service.²²

Finally, suppliers can add value by being willing to take part in the product development process, by challenging the customers’ thinking, and by anticipating their needs. Too often, suppliers just push products and deals. “We have this new piece of equipment,” they might say. “Or we can get you this deal if you buy X quantity this quarter.” It should be apparent that this method of selling is rapidly becoming old school. Buyers see it for what it is—the salesperson trying to make quota or the company pushing its latest product. Both are “me oriented” instead of customer oriented, and customers know the difference.

The finest suppliers today are able to anticipate what their customers need and to act as surrogates for the internal purchasing agents that buyers might otherwise have to hire. Joan Selleck from Nikon Precision told us: “I’m looking for somebody who will anticipate what we need and help us understand it before we need it. It’s really coming up with solutions. Here’s how to place your orders. Here’s how we’ll analyze your high-use items and help you determine when to buy them. So it’s the suppliers who can do for us what a purchasing manager might do. They have a lot of data and can tell me what’s going on in the market. We look for the availability of information that helps us make good purchasing decisions.”²³

So suppliers add value today by using state-of-the-art quality and lean concepts to help customers improve their business processes, by investing in R&D and technology to bring innovation and new ideas to customers, by being transparent about their costs and finding ways to reduce costs throughout the supply chain, by taking part in customers’ product development processes, and by anticipating their customers’ needs. Further, these means of adding value need to be part of “how you do business.” To gain a behavioral advantage, they can’t be optional extras. They have to be part and parcel of what buyers get when they purchase from you instead of from your competitors.