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What is a ‘strategic relationship’?

October 26, 2015

All too often, the phrase ‘strategic relationship’ seems to mean ‘Do as I tell you’. As with words like ‘collaboration’ and ‘partner’, when they come from the mouth of a powerful customer, it is simply an attempt to make demands for concessions sound more reasonable.

That at least appears to be the view of Adrian Gonzalez in his article about Walmart’s latest cost-cutting initiatives. Based on the reports that are emerging, it does indeed seem that the claims by Walmart that it wants to “do right by our suppliers because we want to create strategic relationships,” is perhaps somewhat disingenuous. But as the article points out, this simply brings Walmart into line with most others in its industry – and arguably almost all major corporations.

I agree with Adrian’s comment that it would be nice if Walmart acted as an industry leader in finding new ways to handle the cost-based challenges that it faces. GE CEO Jeff Immelt seemed to support such a view in recent comments when he explained that ‘the first 20 years of my career were all about achieving advantage through low cost. Now they are about speed to market, productivity, integration and data”. Though GE and Walmart are in different markets, might there be opportunity for a similar shift in value and strategic advantage?

It seems to me that there are several commercial barriers to driving meaningful change in supplier – customer relationships. One is the impact of short-termism. So often, cost reduction initiatives seem to be driven with great urgency, almost as if they are a surprise. In such an environment, arguments regarding potential for longer-term value are simply drowned out by the immediate demand for savings or cash. Once the crisis action has been taken, everyone goes back to business-as-usual until the next time. In this context, Procurement is just the hammer being wielded by the executives in Finance. Suppliers effectively have no representation, no one standing up for the quality or value of ‘a relationship’.

But does this mean suppliers are free of any responsibility for the cycle of negative behavior? I think not. Relationships always involve more than one party and unreasonable demands and bullying are ultimately sustained by the behavior of both participants. Walking away is obviously one option, but there are many others. An obvious approach (which I suspect many actually take) is to anticipate these cycles of demand and be prepared for them. In collaborative industries, suppliers share their innovations and improved processes with their customers. In industries such as retail and automotive, they mostly keep them hidden – storing up their savings for the day when inevitably they will be demanded.

At IACCM, where we study trading relationships on a cross-industry, international basis covering both buyers and suppliers, we gain insight to the variety of behaviors and cultural attitudes. Many of the embedded practices are simply a game – and that includes the inevitable squeals of protest. After all, if I don’t squeal, the demands will become even more onerous.

Is that game productive? Does it lead to the sort of benefits that Jeff Immelt is seeking? Probably not. But in the battle for corporate survival, everything is a balancing act – and most suppliers simply will not be ‘strategic’.

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