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Supplier collaboration in the building materials sector

Posted by Andrew Butt on December 12, 2018 10:41:00

We learn about collaboration from an early age.  As children we quickly learn that we need to collaborate with teachers, classmates and team players in order to be successful.  "There's no 'i' in 'team' is a common mantra in sports and work teams.  And "supply chain collaboration" has been a hot topic for decades.  

Despite that, there are very few systems that enable wholesale distribution companies and their suppliers in the building materials sector to truly collaborate on their trade agreements.

So, what is true "supplier collaboration"?

According to the Chartered Institute of Purchasing and Supply (CIPS), collaborative relationships are characterised by shared goals, supplier development, and integration of business processes. They allow collaborating firms to realise benefits which they could otherwise not achieve (Cousins and Spekman, 2003). 

A McKinsey survey found that whilst over 30% of the 100 global companies who took part in the survey stated that they collaborated with suppliers, fewer than 10% could display any "systematic efforts".  Even more interesting, those who did collaborate displayed double EBIT growth rate compared with those who didn't.

According to Tradeshift, 92% of respondents to their survey said that supplier collaboration is essential to driving value in their own business.

And in our own survey of US distributors, 92% agreed that the ease of being able to track deals in real time contributes to the successful outcome of those deals.

Everyone wants true supplier collaboration, yet many companies find it difficult to achieve.

What system is needed?

The starting point (one of our 7 keys to successful negotiations) is to share goals and use them as inputs to the negotiation. Other inputs include a clear picture of past performance, and tools to review what-if scenarios for the future.  With those things in place, negotiations can take place from a position of knowledge.

But agreeing and working towards mutual goals isn't easy when you have separate copies of the agreement, different systems for recording deliveries, and other systems for managing finance and calculating rebate claims.

Instead, what is needed is a single system that:

  • holds the agreement (in a systemised format as well as the actual electronically signed document)
  • provides a common language and data set for all parties
  • provides an audit trail for the sign off of the document and all activity beyond
  • holds transactional data at a granular level and analysis tools that provide shared views on the past
  • enables what-if analysis based on proposed deal structures
  • provides easy roll-up summary information by branch / category or other
  • displays appropriate views of the data for each type of user (finance, commercial, procurement, suppliers)

Those in the building materials sector (and others where rebates and special pricing agreements are prevalent) have an additional requirement to achieve true supplier collaboration.

A key element of negotiations in the building materials sector is the use of creative pricing mechanisms such as rebates, special pricing agreements, overriders, retrospective discounts, and others.  These are design to drive behaviour towards business goals.  So a system that supports supplier collaboration for plumbing and HVAC merchants, electrical distributors, and other building materials suppliers also needs to support rebate management.

By sharing transactional detail and summaries, having a single version of the truth with regards all agreements, and having access to powerful analysis tools, both parties can avoid disputes over rebate claims and instead invest time in creating agreements that benefit them both.

More and more, we are finding that companies select DealTrack not simply to ensure that all rebate claims are made, but to provide a platform for mutually profitable growth with their suppliers. 

Find out more about DealTrack functionality download our eBook "The 7 keys to unlock mutual growth with B2B deals."

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Topics: Supplier collaboration