In all aspects of our lives, personal and professional, each of us strives to build valuable, lasting relationships and the building process continues through the course of our entire life. The topic on building business relationships came to me this past weekend when I got the sudden and inexplicable urge to revisit some old marketing articles from my MBA marketing class. In particular, I dove into materials on innovation as well as risk and reward management of new product portfolios. Since I'm now more immersed into my marketing role and working with new thermocouple wire and cable product ideas, it seemed like a progressive and productive thing to do on a weekend where the weather, quite frankly, wasn’t my definition of springtime.
During my time at Rutgers Business School, I had an excellent marketing professor, Sengun Yeniyurt. He is currently Co-Director at Center for Market Advantage and Associate Professor in Supply Chain Management and Marketing Sciences. His recent research along with John W. Henke, Jr., Ph.D., titled, "OEM Profitability and Supplier Relations” is what inspired me to write this blog.
Ever since I started working at TE Wire & Cable, the supplier/buyer relationship interested me and this new research shows some exciting and constructive findings that can be useful in developing relationships with any manufacturing company.
Henke says that the study reveals three critically important characteristics of supplier relations:
- It proves a causal relationship between supplier relations and OEM profit. The better the relations with suppliers, the greater the supplier contribution to the OEM’s profit; the more adversarial the relations, the less the contribution to OEM profit.
- It quantifies the economic value of suppliers’ non-price benefits to the OEM for such things as supplier sharing new technology, providing “A team” support to the OEM, providing support that goes beyond the supplier’s contractual obligation, and other “soft” benefits.
- It establishes the fact that the economic value of the suppliers’ non-price benefits can greatly exceed the economic benefit realized from suppliers’ price concessions. On average, this can be up to 4-5 times greater, and often much more (see bar charts below).
(Source of graphics: OEM Profitability and Supplier Relations study)
Henke said, “For years, academics and management consultants have suggested companies focused on developing positive relations with their suppliers and other major stakeholders will perform better financially. Many CEOs and purchasing executives intuitively agree with them.”
The elusive value that Henke and Yaniyurt were able to quantify is the “supplier non-price benefit contribution to OEM profitability.”
At TE Wire & Cable, we are always competitive on price and are happy to work collaboratively to get the price lower (if possible); however, we work hard to bring much more value to each customer beyond competitive pricing. A few examples:
- For the past three years, Patrick Durkin and I have personally flown a few hundred thousand miles each per year, strategically traveling the world to visit customers and assist them on various product improvements and evaluate (first-hand) their pain points.
- We continue to innovate for our customers, implementing continuous improvement in all aspects of our daily activities, test new materials, get new approvals, expedite products, etc.
- Our products also undergo extensive quality testing internally as well as with our third party partners.
- And, in my opinion, the most important value that is extremely hard to quantify is our tireless commitment to customer service.
It is important to realize, said Henke, the results clearly show that the OEM interested in improving its profitability should definitely look to its suppliers, not to squeeze them for lower prices, but to work toward achieving better relations with them, and then maintain sustainable long-term positive relations with them. While the OEM Profitability and Supplier Relations Study focused on the auto industry, the results clearly apply to companies in every manufacturing industry, says Henke.
TE Wire & Cable can proudly say that we have some of the world’s best customers. A big thank you goes out to all of you for your continuing support and business. We certainly hope you value the relationship as much as we do. And, if not, we’d like to hear about it.
You can read the complete press release for the study here.