Giving Them What They Want

Supply Chain Professionals and Internal Customers have the same end goal in mind; to create value for their company. But the two groups go about achieving it differently. To create intercompany harmony, supply chain professionals need to embrace their internal customers and give them what they want, while using readily available tools to create sustainable value for their firm. 

I have worked in a variety of businesses and it amazes me how consistent internal customers behave regarding the internal customer/supplier relationship. In most firms, internal customers manage the supplier relationship not supply chain. And rightly so. Internal customers understand their primary business drivers and what they need from suppliers. Factors such as safety, specifications, quality, schedule and continuity of supply are typical areas of focus. Cost is not naturally in the top five influencing factors of the internal customer/supplier relationship. Savvy suppliers understand this dynamic and exploit it by providing a variety of services beyond their core product for clients to become overly reliant. Once the relationship is established, it is very difficult to change the hearts and minds of internal customers. 

Perceived Disruption

Internal customers are typically comfortable with the supplier relationship if the supplier is delivering on time, maintaining quality and keeping them relatively happy. Therefore, they resist interference from outsiders that will interrupt their peace of mind. When supply chain is introduced into the relationship, either through strategic sourcing or category management, internal customers tend to react by fencing the supplier relationship to protect their self-interest from the supply chain team. The barriers come in the form of potential disruptions to their primary business drivers as stated above; safety, specifications, quality, schedule and continuity of supply. Another reaction the supply chain team faces is the perception that strategic sourcing and category management are the “low price people”. The image is one of besting suppliers in a price slashing exercise that inflicts monetary pain. Responsible supply chain teams should understand that price is not necessarily the primary focus of a sourcing project or negotiations. Yes, 

supply chain wants to pay a fair price but overall value should be the goal for both supply chain and the internal customers. 

Internal Customer Perspective

Internal customers have valid points of concern. They need the required goods and services to perform their job. It is understandable for supply chain to encounter these reactions. Supply chain teams need to be prepared to face this situation and arm themselves with the tools needed to manage a favorable outcome. To ensure success, it is imperative to “seek first to understand” internal customer perspective and determine the factors driving behavior with the supply base. This comes through direct discussions about current contract arrangements, supplier performance and outside market conditions. Internal customers need to feel their input is valued. It is the supply chain team’s responsibility to ensure the process is collaborative and one of involvement. This will help to establish a valued working relationship. Trust is built through listening and showing responsiveness to internal customer needs. As trust is being established, deploy the following supply chain tools of: a strategic sourcing process, internal customer surveys, plant tours and cost models to bolster confidence and faith in the supply chain team. 

Tools that Build Trust

Strategic Sourcing Process - Following an established strategic sourcing process that involves internal customers is an effective way to begin changing attitudes. Having internal customers participate in the sourcing event will tremendously improve buy-in and the eventual outcome. They have direct input into the process and their voice is validated by the results. They also become future supply chain champions because they experienced firsthand the power of an organized process that lead to value for their business. 

Internal Customer Surveys - Conducting internal customer surveys, focusing on what internal customer want from the supply base, allows for their input and feedback. The responses guide the sourcing team in strategy formulation. By participating, internal customers will begin to feel their needs are being met. 

Plant Tours - Plant tours and site visits also bolster confidence in supply chain when conducted with specific supplier performance issues in mind. Including internal customers as part of the plant tour team will offer valuable insight and knowledge. You will be surprised how many internal customers have never conducted a plant tour. Asking question related to labor skill levels, recruiting practices, and talent retention, offer insight to a supplier’s labor costs and human resource capabilities. The responses should offer a level of well-being regarding quality and reliability of the workforce. Seeing firsthand how suppliers maintain their facilities, inventory and machinery also creates a sense of comfort, or not. Visualizing efficiency programs and certifications offer insight into quality, safety and a commitment to efficient production. It also demonstrates a focus on cost control and driving down cost. 

Cost Models - Developing cost models to gain insight into suppliers revenue, labor, overhead and profit also shine light on inefficacies in their cost structure and identify where unnecessary costs are passed on to clients creating room for price negotiations. The abovementioned activities are geared to give internal customers what they want. 

Bottom Line

Through the sourcing process and cost model development, supply chain along with internal customers will be able to make a commercial impact that will most likely maintain requirements and optimize the price paid for goods and services. Labor, over-specification and excessive operational requirements drive cost. Internal customers often perceive these components as risk mitigation and part of the cost of doing business. Often these components won’t change because the business is comfortable incurring the cost. It is supply chain’s responsibility to highlight these areas of “opportunity” but ultimately internal customers are accountable for making changes to optimize these costs. Therefore, it is in the best interest of supply chain to acknowledge this reality and work tirelessly to give them what they want. 

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Greg Smith is a supply chain professional with over 26 years of oil & gas industry experience. Greg has held a variety of supply chain positions in upstream, downstream and oilfield services. He has extensive international experience in training and managing high performing global teams. For more information on his practice, services and affiliates, contact him at….