The Value of Differentiation

If we can find ways to create value, we can then rise to the top of our customer or supplier’s hierarchy and vie for the enviable title of ‘customer or supplier of choice.’

One of the hot topics in our industry and a phrase being thrown around a lot lately is the concept of “value creation." This is meaningful as we think about how we connect with our trading partners. It comes down to: How do I uncover ways to be valuable to my customer/supplier? If we can find ways to create value, we can then rise to the top of their hierarchy and vie for the enviable title of “customer or supplier of choice.”

Perhaps we need to first ask why it matters to be the customer or supplier of choice. You may say, “It sounds like a lot of work. I’m a big, important (fill in the blank) customer/supplier, and I get what I want. Why should I exert the extra effort?” To answer this question, I’m going to cite groundbreaking and insightful research done by Alan Day and his team at U.K. procurement and supply chain consultancy State of Flux (SoF).

Specifically, SoF has segmented companies into leaders and followers in the customer/supplier relationship arena. What they have found is that the leaders—those who make an effort to become the customer/supplier of choice; those who make an effort to create value in their relationships—reap benefits. Specifically, these include:

  • Post-contract financial benefits of +6%
  • Twice the likelihood of enjoying benefits from: A partner’s willingness to invest; access to their partner’s “A” team; right of first refusal on innovation

So, if there was any doubt, hopefully we’ve now answered the question of why you would want to be a customer or supplier of choice. Now, let’s move on to how this can be done most effectively: differentiation.

Restructuring your approach

Today, everyone is trying to do more with less, which sometimes makes it difficult to do anything but the minimum to get by. To create differentiation, you must determine how you can restructure your approach to spend more time on those areas likely to create the most value. This will require some effort; in fact, it may be very challenging. This is the key to setting yourself apart from others—blocking time to be creative.

By finding ways to devote effort to this, you differentiate yourself and your organization. It’s hard to start sometimes, because it’s different from your “normal” approach. Below are some questions to ask your partners that may help you begin looking at things with a different perspective:

  • What do you see other customers/suppliers doing that you find innovative, interesting, or forward thinking?
  • What are your annual goals, and how can I help you meet them?
  • What are some of your most challenging problems?

Answers to these kinds of questions will help you to begin to formulate where there might be the “magic” you are seeking, where there are needs that are not currently being met. Or, where there are needs that are not being met as well or as quickly as they could be.

The final step, a reiterative practice, is to refine the idea. Convert it into something practical and use the “what if” technique to vet it on both sides. This will provide you with more input on how to add value until you have formed a solution everyone can support.

The key to long-term viability is to consistently practice this and make it a part of your regimen. And, don’t assume that everything will stay the same—it doesn’t! So, keep asking. Not every week, rather a periodic inquiry will help you learn of new twists, turns, and developments. And, by doing so, you will create value through differentiation, thereby setting yourself apart from the field.Good luck!

Author Lisa Shambro is the Executive Director of F4SS, the Foundation for Strategic Sourcing.

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