If widely adopted, this idea will fundamentally change the nature of
the competitive framework. It will take us from a world where indi-
vidual firms compete against other individual firms to a world
where networks or supply chains compete against other networks
or supply chains.
Supplier development
The conventional arms’-length approach to suppliers often meant
that customers were putting themselves at a significant competitive
disadvantage. Firstly, it has to be remembered that the customer
pays for the supplier’s costs. In other words, the price we pay for
goods and services inevitably is impacted by the upstream costs.
Furthermore, many of these upstream costs are incurred because of
downstream actions! For example, a manufacturer who does not
share information on usage of parts with the supplier of those parts
and who makes frequent changes in requirements at short notice
and still expects just-in-time deliveries is clearly going to create
costs for the supplier. These higher costs are generated through the
additional inventories that the supplier needs to carry to buffer
against unpredictable customer demands and also the cost of
‘schedule instability’ in the supplier’s operations.
Conversely, customers who work more closely with suppliers,
who bring those suppliers into their planning and strategy formula-
tion processes, will benefit not only from lower costs but will also
typically be able to create a more responsive supply chain that can
meet final demand in a more flexible and timely manner.
What is also apparent is that those companies who work more
closely with a limited number of strategic suppliers also benefit
through supplier-led innovation both in processes and products. In
many industries a growing amount of innovation is supplier origi-
nated. For example, in the car industry, much of the improved tech-
nology in the finished product, such as ABS or engine management
systems, was devised by upstream suppliers rather than by the car
assembly companies themselves. By being a part of a close relation-
ship with suppliers such manufacturers can gain leadership in their
chosen technologies and markets. The same is true for quality
improvement, in that suppliers who believe that they are in a long-
term relationship with committed customers tend to be more pre-
166 Relationship Marketing