Getting the Most from Your Suppliers

Your supply chain should always be a two-way street. Make the most of it

Does your company work and play well with others? I'm not going all touchy-feely. But as is often the case, our kindergarten teachers were on to something bigger than we realized.

Dr. Michael Song, a professor of marketing at the University of Missouri at Kansas City, published a study in the January, 2008, issue of the Journal of Product Innovation Management that sought to determine which factors are most important to the success of new technology ventures. Song and his team--Ksenia Podoynitsyna, Hans van der Bij, and Johannes I.M. Halman--looked at 31 studies. They considered all the usual suspects: investment in research and development, the experience of management, and the growth rates of the companies' markets. But the two most important factors in tech company success turned out to be supply-chain integration and customer diversification.

First, supply-chain integration. Suppliers are often the fastest, cheapest, and most effective sources of innovations. When I say cheap, I mean it--product R&D is usually free, with the supplier assuming development costs in exchange for your order.

The two things required to tap effectively into the suppliers' knowledge are education and trust. Education means pushing beyond your suppliers' sales and service departments. You need to reach the people who have real knowledge of what's possible. Often, those are the engineers.

If you're going to open up the imaginations of your suppliers, they must trust you. A fear-based relationship will only produce enough idea-sharing for the supplier to protect his or her contract. To get beyond this, you must nurture a level of trust that cannot be created from legal contracts. It's built by the way you work together and by the core values that your company leadership evinces.

Supply-chain integration is a two-way street. You're part of someone else's supply chain, too. So instead of focusing on doing the minimum necessary to fulfill contracts, challenge your team to create ideas to help your customers sell to their customers.

Second, meaningful diversification involves just as many moving parts, and people. It's too easy to think of diversification in the big-business way--as a collection of unique companies under the same ownership. Song defined it much more broadly and, I think, practically for entrepreneurs. He sees diversity as variety in customers and customer segments, their geographic range, and the number of products. You can diversify your income stream by changing "what" product or service you're selling. You can also diversify "who"--a new industry, perhaps--and "where" you're selling.

At their core, both supply-chain integration and diversification are about making connections with an expansive range of companies and customers. As the economy heads into challenging times, this concept may be the key to surviving and thriving. As Benjamin Franklin, one of our most famous small business owners, said at the signing of the Declaration of Independence: "We must all hang together, or most assuredly we will all hang separately."

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