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3 ways to build trust with your suppliers


Pandemic-related supply chain disruptions around the world have painfully exposed faulty supplier relationships. They made it clear that trust between companies and their suppliers is key to building a resilient supply chain.

But how do companies work to develop and maintain trust? And, if trust has been reduced, is it possible to change course and create a better relationship? Recent search answers these questions and provides practical advice that can help business partners increase the level of trust in their relationships.

Imagine a strategic business relationship with little trust between buyer and supplier. This may incentivize the purchasing organization to micromanage the supplier or implement safeguards such as additional quality checks, adding buffer stock to inventory, and imposing penalties for improper performance.

But lack of trust in a business relationship is a two-way street. Disgruntled vendors don’t like to be micromanaged. When this happens, the supplier’s account management team can become frustrated. The supplier’s CFO may impose the addition of a 15% “pain in the ass” factor to the customer’s price, and the supplier’s account manager responsible for the account may find themselves in trouble when members of the team leave to work on better accounts.

These behaviors dramatically increase the transaction costs associated with doing business and almost always prevent organizations from wanting to collaborate to solve more strategic challenges.

A method to measure trust

But trust is a fuzzy thing. How to measure the level of trust in relationships? This question led the three of us to develop an assessment toolwhich measures the health of the relationship with the business partner and helps both parties understand how their actions and behaviors may be inhibiting trust in the relationship.

As part of our research, we conducted 129 assessments of 98 unique business partner relationships across more than two dozen industries. On average, the assessments were conducted 1.7 years into the business partners’ existing contract and had an average annual contract value of $94 million. In many cases, business partners had worked under previous contracts and were looking to create more strategic relationships that required a higher degree of trust. Fifteen of the relationships allowed us to do follow-up assessments, which gave us valuable insights into how to turn a low-trust relationship into a high-performing partnership.

Our Partner Compatibility and Trust (C&T) assessment tool measures five key relationship components that contribute to a healthy and trusting relationship.

  • To concentrate is the ability to combine individual roles in a corporate direction for the benefit of all stakeholders. There is a common purpose, direction and clarity around this direction.
  • Communication is the effective and efficient transfer of meaning through words and actions to achieve and develop mutually beneficial outcomes. This includes the open and timely sharing of information a partner needs to make decisions.
  • Team orientation is the ability to focus and direct individual goals and objectives into a cohesive group strategy. Team orientation is a key indicator of how well business partners are working together.
  • Innovation is an organization’s ability to deal with change dynamically and its tolerance for risk and to try new ideas and solutions. Strong, trusting relationships allow parties to share risks and rewards, invest in each other’s capabilities, and collaborate to achieve common goals.
  • Confidence in performance is the constancy in the realization of the promises, that is to say the respect of the commitments.

For each component, buyers and suppliers rate both their image of themselves and their perception of their partner. A key objective is to identify gaps that highlight areas contributing to misalignment and distrust. Once the gaps are identified, trading partners can begin to fill the gaps.

The research reveals three lessons that organizations can use to improve the health of their relationships.

1. Trust starts with cultural fit.

In our search for Vested: How P&G, McDonald’s and Microsoft are redefining success in business relationships, a book the two of us (Kate and Karl) co-authored with Jeanne Kling, Procter & Gamble executives have attributed cultural fit with suppliers as a critical success factor. Cultural fit in a relationship with a business partner can come down to having similar perspectives on how organizations work, communicate, and make decisions. Our C&T assessment method allows business partners to assess their cultural fit across all five dimensions.

One example of a cultural mismatch we encountered involved a medical device company and a vendor to which it had outsourced facilities management. The medical device company’s operating culture valued flexibility and innovation while the vendor’s culture was hierarchical and process-oriented. Realizing this, the parties amicably agreed that the vendor would not participate in any future bidding process. The parties have also agreed to a fair way to compensate the supplier for helping to ensure a smooth transition to the next supplier.

2. Your business model matters.

When organizations buy goods and services, they have a choice procurement business modelsranging from highly transactional contracts (purchasing goods with a simple purchase order) to highly strategic contracts based on achieving ambitious business outcomes such as speed to market and innovation to meet needs United Nations Sustainable Development Goals (ODD) for responsible production.

Our research using C&T assessments shows that an organization’s choice of sourcing business model can have a positive impact on trust. Take the example of a pharmaceutical company that had outsourced the management of its facilities to a supplier for almost 25 years. In 2015, the parties operated under a performance-based procurement business model, which places risk on the supplier to ensure cost savings and performance levels. While savings and performance goals were met, the pharmaceutical company was irritated by the supplier’s lack of innovation. Likewise, the supplier was frustrated because his profits suffered every time he performed work outside the scope of the contract. Here, C&T’s assessment found that the parties had a good cultural fit, but the contract itself pitted the parties against each other in a classic win-lose situation.

In 2017, they decided to try a new approach to procurement that used a procurement model acquired, which combines a formal relational contract with a results-based business model. (It’s called “acquired” because the parties have a vested interest in each other’s success.) Now, the parties share the risk and reward for achieving mutually defined desired outcomes. The results are significant after the parties change their business model, both in terms of results and increased trust. The vendor completed 48 transformation initiatives and nearly 250 standardization projects, resulting in double-digit savings and winning incentives that drove higher profits. Trust has also increased, increasing by 22% in 2019. Their relationship health continues to climb and by 2021 it had increased by 35%.

3. Building trust is a strategic choice.

Can you turn a broken and suspicious business relationship into a healthy one? Or can you take a good relationship and make it great by increasing trust? The answer to both is a resounding yes. But this does not happen by chance; it is a strategic choice supported by conscious behavioral changes.

In all the organizations we studied, the need for change served as a catalyst for improving the health of relationships. The C&T assessment helps business partners embrace the vague concept of trust and provides a quantitative measure of the health of their relationship. Equally important, the assessment highlights gaps where low-confidence behaviors create friction.

Such was the case with the Vancouver Island Health Authority and South Island Health, a group of physicians who worked under a labor services agreement to provide hospital services to the authority. When a lack of trust stalled contract negotiations, the parties turned to a neutral review of their relationship that included the use of an assessment. It provided concrete insights into the cause of their trust issues and helped the parties realize that they both wanted a better match.

They made the conscious choice to transform their troubled relationship into one of trust and collaboration. Their efforts led to an increase in their C&T index from 0.48 to 0.71 in just two years. The increased confidence has been accompanied by increased business results, such as achieving cost containment goals and developing innovative solutions such as Hospital-at-home program.

The results are real.

Our research can be summed up in a simple equation: confidence = happiness (in terms of lower costs, improved performance, innovation and even a general feeling of positivity and happiness at work).

The C&T assessment quantifies happiness by asking business partners to provide adjectives describing their relationship. For example, the Vancouver Island Health Authority and South Island Health baseline assessment used words like distrustful, broken, tense, distrustful, contradictory, toxic, and suspicious. In a follow-up C&T evaluation two years later, team members described the relationship as collaborative, respectful, trusting, supportive and, yes, even happy. How happy? A comparison showed a drastic reversal with the percentage of adjectives dropping from 84.5% negative to 86.2% positive.

The bottom line? To build trust with your business partners, start by reviewing cultural fit and selecting the appropriate sourcing business model. And don’t underestimate the power of making a strategic choice to consciously build trust.