 My Dad taught me a lot of life lessons, but two of them really stick. The first is to be honest; the second lesson is to buy the best quality products that you can afford and take care of them - they will reward you with a long life of use.
What products do you use – whether it’s a tool, an appliance, an article of clothing, a musical instrument, camping gear, or anything else - that have had a long, useful, life and are a pleasure to use? Bring to mind the older things that you consider to be vintage. Recently I listened to a podcast featuring Satish Kumar, where he says: “whatever we have should be beautiful, useful and durable at the same time.” It’s advice that he got from his grandmother. He calls it the ‘BUD’ principle of elegant simplicity. Let’s break that down a little - and as we do, I encourage you to think about how this applies in your life and experience. Later in this article, we’ll look at why forward-looking companies can benefit from adopting these principles for the products they design and manufacture. Beautiful When something is beautiful, we will want to use it for a long time. What do we mean here by beautiful? I can hear the discomfort among our engineering readers about something so subjective, so let’s qualify it:
Useful Think of the presents that you may have received in the holiday season. What will you still want in 5 years? What will wind up in donation pile, trash, recycling, or garage sale? Just so that we don’t get too puritanical here, useful items include toys, musical instruments, and so on. The question is whether this is something that you will want to pick up and use over and over. When I recently downsized from a four bedroom home to an apartment, I needed to purge about half of my possessions. What do I miss? Very little – in fact there’s a sense of freedom and lightness of only having what I need. Durable Products that last many, many years, potentially even lifetimes. Durable products are repairable with simple replacement parts and able to retain their functionality for years to come. The Business Opportunity The Turning Tide We are witnessing rapid transformation in the world. The last 40 years or so have represented a time of conspicuous consumption for many and an emphasis on low cost products that were designed and manufactured for planned obsolescence. This philosophy and behaviour has contributed to a lot of the environmental problems (landfill, pollution, climate change) that we’re just now starting to deal with. Considering that most of us are now aware of the problem, there’s an increasing desire for products that truly provide benefit (that are a joy to use and contribute to a better world), that minimize pollution and energy use throughout the lifecycle, that are usable for a long time, and that can be transformed well after they are no longer usable. Paying for the True Cost of a Product Our economic system privatizes profits and socializes costs – environmental (pollution, use of land), and societal (pressure on wages, benefits, safety, local economic collapse through plant closings, etc.). Governments, communities, and families are often the ones paying the cost of poorly made, low cost products, but this is starting to change. Just recently, the Ontario government announced that it will start charging producers for waste diversion. When the costs are borne by the producer, different product design and manufacturing decisions are made. The successful organizations of the near future will be the ones who consider these costs now and shift their design and manufacturing decisions accordingly. Our North American Opportunity How will we, in North America, be successful in designing and manufacturing products right here? I believe there’s an emerging market for high quality, well designed and made products that are affordable for most – the market segment between the low cost/marginal quality and the expensive/ultra premium end of the market. Many of the best designers and makers will want to work on these products and many consumers will turn to these products as their true value becomes appreciated. What goes around, comes around. Maybe my Dad was on to something.  Once the ink dries on the contractual signatures, it can feel like a weight has been lifted. Negotiations are over for another round, and both sides have an agreement they are satisfied with – so what now? In long-term partnership agreements, often spanning several years and hundreds of millions of dollars of business between partners, the management of the agreement and the relationship becomes critical. Successful agreements set clear expectations and behaviours for both parties - allowing all involved to focus on improving the overall system that produces and delivers materials, components, or services from supplier to customer. This approach results in better quality, lower prices, and a higher level of engagement between all involved.
Negotiation of supply agreements is a key function for any Sourcing Professional, and requires strategic planning, an extensive knowledge of a firm’s supply partners, and internal cross-functional alignment. Every stakeholder wants to be heard, and wants their say in contract content, planning - and needs to be kept updated through the negotiation process. As the lead negotiator, the Sourcing Professional must be detailed, meticulous, and determined, as well as an excellent communicator to see the supply agreement through to closure and execution. Taking a System Thinking Approach to Contract Management Considering the supply contract from a system thinking perspective, one needs to take a view of how each supplier fits into the overall value chain, and consider the significance that each partnership brings. Involving all stakeholders early in the contract structure and negotiation processes, keeping discussions focused on business and terms at hand, and searching for ‘win-win’ scenarios will ensure that agreements close positively for both parties. In turn, the execution portion of the contract will begin with both firms focused on joint success, collaboration, and continuous improvement in order to achieve the mutual goals set out for the contract term ahead. There are times however, where the path to ‘win-win’ is not always clear. There are situations where a smaller firm relies on a much larger firm for key components to their product. What do we do when a supplier does not need our business? Instances like this require a Sourcing Professional to take on a sales role – selling the organization, the product and the future to a larger supply partner. Additional efforts in the form of constant contact on the phone and in person – and transparency in plans and requirements - lead to credibility between the larger supplier and smaller customer. Putting in these efforts and taking a sales and promotional role can lead to a collaborative reciprocal relationship even with organizational size imbalance. Key Components for Building and Maintaining a Long-Term Supplier Partnership A few things to remember during contract structure and negotiation that will go a long way in maintaining and building a partnership with a supplier after it has been signed:
Ultimately, while negotiation of a mutually beneficial supply agreement is a critical part of the Sourcing Professional’s job – along with securing supply and pricing, governing behaviours, and setting expectations, it is the relationship with the supplier that is the foundation of successful growth between partners. A positive, transparent, reciprocal and cross-functional relationship will lend itself to profitable long-term partnerships. |
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