Supplier management and sustainability

Supplier-buyer relationships

Although ‘grain free’ products are popular, wheat remains an important raw material for the global pet food industry. How a manufacturer buys wheat illustrates how supplier-buyer relationships have evolved from those based on conflict to those based on partnership and that offering greater scope for sustainability. This fictitious but realistic case study, demonstrates what needs to be done to ensure sustainability through supplier management.

Take it or leave it

Trading relationships vary depending on external, mitigating factors over which neither the supplier or buyer has any direct control. In times of high crop yields, the relationship might have been one of the buyer saying: “I will give you $150 / tonne. Take it or leave it.” In times of shortage, the reverse is also true: “The price is $160 / tonne. Take it or leave it.” This illustrates the adversarial nature of the relationship, with each trying to benefit financially depending on the situation and one where there is a lack of trust.

The Chartered Institute of Procurement & Supply (CIPS) characterises this type of relationship as: “Buyer and supplier are ‘opponents’, each striving to obtain advantages at the other’s expense. There is little trust, communication and cooperation, and there may even be conflict.” Such relationships are not sustainable, as both parties are not looking for a win-win outcome.

Long-term relationships

However, consider the scenario where the grower has to mechanically dry the cereal due to wet weather. This increases the grower’s production costs. If the buyer offers a bid price that is uneconomical, the grower will make a loss. PETS International December 2017 48 Whilst the grower might accept losses in the short term, the position will be unsustainable long-term. Given changing weather patterns, this situation could exist over many years and may result in the farmer no longer growing wheat or going out of business.

In this scenario, the buyer-seller relationship ends due to a failure to ensure sustainability and the buyer is left with a supply problem.

Evolution of supply chain management

Whilst these adversarial relationships might still exist, there has been an evolution towards more sustainable foundations. This change has been driven by

• Fewer resources at the pet food manufacturer to look for and negotiate with sellers
• Consolidation and rationalization in the market with fewer suppliers

Consequently, there has been a move towards relationships that are more sustainable and are built on partnerships. Whilst many types of partnership exist, in general terms these are characterised based on the agreement to collaborte closely for the long term, and sharing ideas and information. “There is a very high level of trust and the aim is to find solutions that benefit both parties without detriment to either.” (CIPS )

Underlying these changes is the evolution away from often adversarial buyer-seller relationships into those built on the principles of ‘relationship management’ or ‘supply and value chain management’ built on mutual benefit.

Mutual trust

Some experts, like the American Society for Quality (ASQ) compare supplier-buyer partnerships, built on mutual trust, with the development of interpersonal relationships that might result in marriage. Their ’Supplier management handbook’ shows these developing in stages:

1. Supplier selection (blind dating) – after exploratory communication and meetings with potential suppliers, an initial contract is signed
2. Preferred supplier (going steady) – confirmation of initial feeling for both parties, leading to limited commitment with the preferred supplier
3. Longer term commitment (engagement) – based on performance, longer term commitment with the preferred supplier is considered
4. Long term contract (marriage) – exchange of long term contracts; relationship deepens with partnership in projects e.g. new product development
5. Lifelong partnership – supplier and buyer work together for mutual benefit; no apportioning of blame with both parties working together to resolve the issues when things go wrong.

Returning to the example of buying wheat, development of a partnership can bring mutual benefits. Longer term contracts allow the wheat supplier to invest in more efficient ways of growing wheat. The outcome might be increased yields of better quality wheat, a situation that has mutual, more sustainable benefits for both buyer and supplier.

Embrace working together

The concept of working together for mutual benefit is widespread around the pet food manufacturing industry and supply chain at regulatory and operational level.

This concept underpins the ways of working of many pet food manufacturing industry associations global, for example PFI in the US, PFMA in the UK and at global level Global Alliance of Pet Food Associations (GAPFA). At corporate and operational level, examples of this way of working are seen in the concept of ‘Mutuality’ one of the ‘5 Principles of Mars’ used globally around Mars Group. The concept also extends into the raw materials and packaging supply chains where companies like the global agri-feed corporation Cargill and the international packaging group Mondi have implemented this business ethic and way of working.

We live in a fast-paced world of constant change. Those that adapt and evolve to change are more likely to survive. Those that do not adapt and embrace critical concepts like mutual benefit and sustainability are less likely to survive.