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06 July 2006
Mike Fogg introduces the Kettering Relationship Life Cycle Model and explains how buyers can use it to assess and improve their supplier relationshipsRelationships, like products and services, have a lifecycle. Just as the place of a product within its lifecycle affects the purchasing strategy, the buyers' and suppliers' understanding of where they are within the relationship cycle will affect their behaviour. Like young lovers, both parties will be more guarded during the early steps in a relationship and more open when they know each other better.
The Kettering Model recognises that relationships exist between organisations and their people, whether an active supply of goods and services exists between them or not. The model identifies three core segments, around which 25 numbered process steps "orbit". Progressing clockwise the main segments are:
Initiation - both parties discover each other and their needs and aspirations.
Agreement - the parties develop an agreement together.
Delivery - receipt to payment processes occur; further opportunities are recognised.
The outer orbit represents action taken by suppliers and the inner cycle action taken by buyers; attach no significance to the fact that one of the orbits is nearer to the centre. Also, steps with significant involvement of both parties cross both orbits. Although the steps have been placed in a typical sequence, this may change, by accident or design of the parties concerned.
It is also worth bearing in mind that this model recognises that the process of relationship development, from say, only a sense of awareness, to a closer collaborative relationship, may take several orbits. Some steps may be used more than others and some may be omitted altogether. Relationships are dynamic and developing them requires alertness and effort.
Steps within the initiation segment are: 1. Seller develops offering 2. Seller there to be found 3. Buyer has need 4. Seller creates need 5. Buyer specifies 6. Conditioning by seller 7. Seller sells 8. Buyer searches 9. Conditioning by buyer 10. Serious discussion
Steps within the agreement segment are: 11. Buyer enquiry 12. Seller quotation 13. Negotiation 14. Headline agreement 15. Detail agreement 16. Implementation
Steps within the delivery segment are: 17. Final termination 18. Latent termination 19. Completion 20. Extension 21. Business development 22. Continuous improvement 23. Ongoing delivery 24. Refining 25. Initial delivery
Challenges for buyers
Analysis of the model highlights 10 central challenges for buyers and their organisations:
- Sometimes relationships can be limited to "old faithful" suppliers. Buyers should think about how much effort they are putting into developing new relationships with other key providers in the marketplace.
- While suppliers engage in a range of activities to create and develop goods and services, buyers need to assess how proactive they are in influencing this development. Buyers need to contribute to this process rather than simply accepting what is offered to them.
- Attention needs to be given to the robustness of the buyer's processes when dealing with suppliers. Stakeholders need to be aware that sales professionals can seek to meet their objectives by choosing a path through the model and business processes need to be able to handle this.
- There should be an increased emphasis on innovation. While the enquiry process is popular, there are other ways of dealing with suppliers. For instance, proactive research carried out by the buyer can lead to successful negotiations. Generating the best responses from suppliers should be the main aim.
- While buyers need to ensure that the product meets their customer's needs, the way in which they do this can have a big effect on their relationship with suppliers. Buyers need to ensure they encourage suppliers to perform to the highest standards and must not accept second best.
- Continuous improvement should be the hallmark of all buyer/supplier relationships. Length of contract, importance of the requirement and risk are factors for both parties and buyers should meet suppliers to search for improvement. Often it is the case that suppliers are only contacted when there is already a problem.
- Buyers need to be aware of the business development opportunities (step 21) sought by suppliers in a process called "deep mining". This is when suppliers seek to identify further business opportunities with their customer, either by gaining additional work in different areas or introducing additional products or services. Suppliers' people may be deep mining your organisation and people in your organisation may be inadvertently assisting them.
- Regular and continuous improvement and development should allow both organisations to develop a closer relationship from which they benefit, and gain competitive advantage. Assuming this is the case, there will still be elements of steps six to 10 (the selling process) in this relationship development, but steps 11 and 12 (enquiry and quotation) will be omitted and 16 and 17 (implementation and delivery) reached in a much more collaborative manner.
- The processes of steps 22 to 25, extension, renewal or termination, need to be handled with care. Public sector apart, there seem to be two extremes. Contrast the buyer who always extends or renews and the buyer who always re-bids. Neither is likely to get the best result for their purchasing organisation.
- An informed decision is needed, based upon the benefits obtained and projected. And suppliers will evaluate customers in exactly the same way.
- Making the decision to stop purchasing from a supplier can have effects that stretch further than the short term.
How the supplier feels at the end of the process could affect the relationship if it is renewed. For instance, the supplier may feel they have a score to settle at steps six, 12 and 13 (the negotiation). Conversely, it could result in the resumption of the old alliance at step three.
Again, there is a range of reasons for termination from the natural end of the requirement to a feeling of violation by one or both parts of the relationship. Consider that if a situation ended in poor circumstances this may affect the people involved if they meet again in the same or different organisations.
As well as showing where both parties stand in a given relationship, the Kettering model allows buyers to work with and challenge others internally and externally to develop relationships to meet everyone's needs.
The model is also useful in allowing buyers to see the purchasing cycle as an iterative, evolutionary process worth investing time in, rather than a single "req-to-cheque" process.
The more important the purchase, the more vital this consideration is. Lastly, the model illustrates the need to understand as much as possible about suppliers and try to establish what their objectives are. Sales people are actually human beings, after all.
Mike Fogg is a consultant with PMMS Consulting Group (www.pmms-group.com<%$Image:
SMjul2006Mike Fogg introduces the Kettering Relationship Life Cycle Model and explains how buyers can use it to assess and improve their supplier relationships Features analysis features 2006