Carlos Cordón researched the collaboration with suppliers

Collaboration in the supply chain is the new maxim for defeating the competition. But how do you select the right partner and how do you develop a strategic collaboration? Professor Carlos Cordón of the IMD Business School in Lausanne researched these questions and recently published a book on the subject.

I met the originally Spanish Professor Carlos Cordón during the ‘Orchestrating Winning Performance’ inspiration week at the sun-drenched campus of the IMD Business School, in June of this year. The Netherlands had just been evicted from the European Championships by Russia, led by Dutch coach Guus Hiddink, and our boys had prematurely left their hotel Beau-Rivage in Lausanne. Cordón leads me to his study, winding his way through the many heated discussions between participants from all over the world. He apologises for the clichéd stacks of papers and books.

I want to speak with him about his book ‘The Power of Two’, but before I do I can’t help but ask him about the chapter he wrote about the Chief Supply Chain Officer in the book ‘Leading in the Top Team, The CXO Challenge’.

Where does this new top manager in the supply chain come from?
‘The position of Chief Supply Chain Officer has a wider scope than that of Chief Operations Officer, which only covers the factories. Companies outsource increasingly large amounts of work, and therefore the co-ordination of the supply chain becomes a task of strategic importance. Supply chain management, therefore, ends up on the agenda of the CEO.’

Will the Chief Supply Chain Officer always be on the board of a company?
‘That depends. He or she  will be if three-quarters of turnover is procured, then it will involve various operations. You need a clear overview when you procure from various countries; procurement from a single source requires a situation of mutual respect. Twenty years ago, companies often had a logistics tsar who tried to co-ordinate everything but did not succeed.’

Let’s move to your new book ‘The Power of Two’, which you wrote in collaboration with your IMD colleague Thomas Vollmann. Why did you write this book now?
‘Many years ago, there was a lot of talk about collaboration, and a lot of fighting. It resembled marital problems. That is why I took the position of marriage counsellor for the two collaborating companies, ABB and Caterpillar. There were so many examples of disasters there. I tried to understand what it is that intelligent top executives do. They each only know half the story. Advising a couple is easier outside the fight. Couples often do have the intent of working together, but then just don’t do it. The question is how to get them to do so anyway. You have to dispel the myth that things cannot work with every partner. Do not collaborate with the supplier of paper for the photocopier. If you want to ask how to have a good relationship with a man and with a woman, you should ask them both. Given this new theory, I thought it would be wise to collaborate with my colleague Thomas Vollmann, because four eyes see more than two.’

You mention various approaches of suppliers in your book, including that of the Rottweiler. How would you describe that approach?
‘The rottweilier is the purchaser whose only objective is to lower the price. He is a skilful negotiator. Imagine taking that attitude towards your future wife. It will not continue to be a healthy relationship later on. Suppliers will say: “You have to pay extra if you want a little bit more.” If purchasers head to China to buy products for one time only, you will see shark behaviour: they smell blood in the shape of discounts. It is appropriate to ask: am I subsidising my suppliers, who are being squeezed by my competitor?’

Which different types of purchasers do you distinguish between?
‘Purchasers can be farmers with long-term planning, or hunters with one-shot attitudes. There are two different variations of the first type, which you can see in the approaches that Toyota and Honda took in India, for instance. Toyota selected suppliers of high quality and helped them cut costs. Honda preferred cheap suppliers, then helped them improve their quality. Hunters may achieve good results in the short term, but risk the eradication of prey in time.’

How are you supposed to select your partner?
‘The well-known Kraljic matrix is very useful in selecting a partner. Try to find a strategic partner for the future. There are two essential questions when selecting your partner: what is their potential for the future, and is the partner willing? However, Kraljic’s matrix is like Rubik’s cube. Collaborating companies can never completely be in line with one another, because they each have different targets. It is important to try and minimise these alignment problems. In the case of ABB, there were various problems. But just as in a marriage, you have to focus on the relationship. Cherish it and work on it, or the marriage will go sour. In a supplier relationship, it is important that you meet one another occasionally. Don’t just talk to each other when there are problems. You have to schedule quality time.’

Halfway through the book you move from procurement to commerce. Why is that?
‘Nobody in the sales department knows anything about Kraljic in business-to-business. Sales is actually the reverse of procurement. There is a lot of knowledge about Customer Relationship Management in the consumer market, but not in b-to-b. Sales officers have to co-ordinate a deal in a business environment. It is remarkable that much more money is being invested in training purchasers than in training salespeople.’

Which companies do you believe give the right example in terms of collaborating with suppliers?
‘Philips has helped its suppliers develop a global range. Both parties said: “We tried once, but we failed.” My response in that case is that they were not working with the right partner. I am currently involved in a project of ABB and Caterpillar that involves their exchanging employees, like POWs. Just like ambassadors never stay in one country, it is wise to systematically rotate such employees, to prevent your own employees from starting to identify with the partner company too much.’

Could you start a partnership with any company?
‘No. It takes two to tango. Every man would like a relationship with Angelina Jolie, and every woman with Brad Pitt, but they wouldn’t like that. Not every company is a suitable partner. For instance, take a company that has just merged: they would like to quickly realise synergy from this fusion by looking at finances and joint procurement. So don’t collaborate with every company. As a rule of thumb, I’d say you can have no more than ten good partners per business unit.’