Working with Suppliers on Projects

The current posting presents a combination of corporate strategy and project management concerning working with suppliers on projects. The showcase encompasses research experience in corporate strategy and over 15 years of project and program management experience.

The corporate strategy theory states that a company and its suppliers form an ecosystem, very similar to a natural one, governed by formal and informal rules. For the relationship to be efficient, a company would need to look at it through the lens of a strategic alliance or partnership if the end goal of the relationship is offering a final customer a product or service in the market long-term. Companies often shop around for new suppliers looking for an offering cost-based. They lose opportunities to create a stable relationship with their supplier leading to the superior quality of products or services delivered. In the industries where the competition is based on price, this strategy is acceptable, but the profits are small. In the high-technology area, where generally the differentiation drives superior profit margins, keeping the cost at the bottom line is not always the best strategy. The corporate strategy theory shows that an ecosystem composed of high-technology companies having long-term relationships is more successful in satisfying customer needs than companies in a transactional relationship with their suppliers. Good examples of creating a solid ecosystem are Cisco Systems and most pharmaceutical corporations, who created competitive advantage out of their ability to create strategic alliances and partnerships with other companies, including essential suppliers. Other industries benefited from companies’ collocation in a business cluster, with Silicon Valley being the most representative business cluster.

Strategic alliances and partnerships can help companies develop new services and products, manufacture products, promote or sell products and services, or provide aftermarket services for products. The research done in the field shows that companies in vertical industries can create successful relationships with their suppliers. The companies entering successful associations have a similar size, or a smaller supplier does not feel crushed by the larger customer. When it comes to companies in the same industry, the relationship will work if they are the same size. They have a compatible cultural model, and they agree to a common set of rules concerning their relationship. The relationship can be formal (contractual) or informal; the best association is created by creating temporary or permanent joint ventures. When it comes to the type of leadership suited to lead an association, the research shows that a transformation leader is better suited to drive the association than a transactional leader.

Now that we set the background on strategic alliances and partnerships let us discuss working with suppliers during new product development. The research shows that the development cycle of new products and services shortens if the suppliers are involved at the onset of development and involved in developing working prototypes. Additionally, frequent meeting with suppliers helps the project. The meeting’s frequency depends on the intensity of the project’s activity and is variable during execution. The supplier’s schedule should be integrated into the project schedule. However, active risk and opportunity taking on supplier’s activities should happen at all times, requiring potentially thinking out-of-box. The following paragraph contains such an example.

A few years back, the program’s team I was working on needed some prototype hardware boards on a very aggressive schedule. There were four boards to receive, and we got a lead time of four weeks. We tried to expedite the delivery, and it was not an option. Based on the supplier’s status, the delivery of units to the program qualification part would have been late. However, some thinking out-of-box happened. We asked the supplier to describe the manufacturing processes and found that the first board will finish the build in about two weeks, and they thought they needed to deliver all four boards at the end. The team needed just one board to start their testing on design. By the time the other three boards arrived, we were able to work with the supplier and debug the other boards, keeping the program on track for this activity.

Outsourcing nowadays appears even for project management or other organizational structures. The outsource members should be treated as any other team member, and sometimes the difference between an employee and an outsource is very blurry in the organizational structure, as the outsource members are integrated into the company organizational structure.

The posting concludes that relationships with essential suppliers should be treated as a strategic alliance. For the part where the suppliers work on developing products and services, they should be treated as stakeholders. Many times, they are integrated into the organizational structure of the project. In many circumstances, companies outsource project management functions, and the new allies have to be integrated into the project’s organizational structure.

Dr. George Gafencu, DBA, PMP, DTM

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References to Working with Suppliers on Projects

[1]       Project Management Institute, A guide to the project management body of knowledge (sixth edition). Newton Square, PA: Project Management Institute, 2017. Retrieved from https://www.pmi.org

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