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Companies have many opportunities to create win-win outcomes with their suppliers. Here are some examples of approaches taken by conscious firms.
Finding opportunities to create value
Companies should continually look for creative ways to craft mutually beneficial relationships with suppliers. For example, The Container Store studied its suppliers' businesses and found that many of them have slow seasons when much of their machinery is idle and workers are laid off. The company now tries to place large orders during such slow times. This doesn't cost The Container Store much but has a significant positive impact on the supplier's business.
Paying on time
One of the biggest complaints suppliers have is that their customers don't pay them on time. Ironically, the larger the customer, the more pronounced this problem. This unfair practice creates a ripple cash-flow problem throughout the supply chain, as suppliers are often unable to pay their own suppliers in time. Conscious businesses make it a point to always pay on time or earlier. Retailers especially have a great advantage in that they have high liquidity but their suppliers do not. Small manufacturers often find that the more they sell, the worse their cash flow becomes.
The South Korean company POSCO is the most admired steel company in the world, according to Fortune, and the fourth-largest steelmaker in the world. POSCO has excellent relationships with all its stakeholders but is particularly noteworthy for its orientation toward suppliers. The company makes it a point not only to pay all its suppliers on time, but to actually pay in cash within three days, a policy it started in 2004. Its purpose in doing so is to help the financial flexibility of its partners so they in turn can pay their own suppliers on time, enhancing the health of the whole business system.
Treating suppliers fairly
Fairness is an essential quality in dealing with all stakeholders, especially suppliers. WL Gore & Associates CEO Terri Kelly says, "We're not a company that is the cutthroat, saving-a-penny type and moving on to the next supplier; that becomes very disruptive to the business. For our associates on both the supplier side as well as on the customer side, there's kind of a natural value system that we have in terms of being fair to all of them. At the end of the day, our reputation is at stake."
Helping suppliers survive and flourish
Conscious companies often help suppliers through difficult times. REI CEO Sally Jewell describes the company's philosophy: "Some of our suppliers are quite small, and we represent a large part of their business. During the downturn, there were instances where their banks would not support them. So we prepaid for inventory and held it in our warehouse, because they really needed the cash flow to survive. We didn't do it without thinking about, 'Is this a company that's going to survive? Is this a supplier that is really critical to our customers? Are they producing a product that really needs to thrive over the long term?' So we weren't irresponsible about it, but tried to be thoughtful." Conscious companies invest in their suppliers to help them grow. The Container Store sometimes buys machinery for its suppliers to use to manufacture the products it sells. POSCO provides its suppliers with focused long-term support intended to help them become world-class businesses. It has established a Win-Win Growth Bureau with twenty-three members to oversee and coordinate these activities, running about sixty-seven programs - including technology assistance, low-interest financing - to support suppliers.
CONSCIOUS CAPITALISM: LIBERATING THE HEROIC SPIRIT OF BUSINESS
AUTHORS: John Mackey & Raj Sisodia
PUBLISHER: Harvard Business Review Press
PRICE: Rs 1,250
ISBN: 9781422144206
Raj Sisodia
Author speak
A conscious business aligns the interests of all stakeholders, so that what is good for one is good for all, co-author Raj Sisodia tells Ankita Rai
Doesn't the race for better quarterly numbers and profits make the concept of 'Conscious Capitalism' difficult to implement?
Companies should follow a conscious way of doing business because we need to recognise the impact businesses have on their stakeholders. Great businesses are those that are managed for the simultaneous and long term well-being of all of their stakeholders. Simply being driven by quarterly numbers and profits means that a business favours the immediate interests of its shareholders over the long-term well-being of the whole enterprise. Consider the analogy of an athlete who takes performance-enhancing drugs before every race but fails to focus on nutrition, training and health. Such athletes cannot succeed in the long term. Similar is the case for businesses which focus on short term success.
What are the key pillars of 'Conscious Capitalism'?
There are four pillars of 'Conscious Capitalism': First, every business must identify its core values and a higher purpose that goes beyond making money. Second, the business should be managed for the simultaneous benefit of all of its stakeholders. We use the acronym SPICE to denote the stakeholders: society, partners, investors, customers and employees. A conscious business aligns the interests of all stakeholders, so that what is good for one is good for all. Third, such businesses have conscious leaders, who are driven by their loyalty to the firm's purpose. They lead by mentoring. Finally, such businesses have unique cultural characteristics: We call it 'TACTILE'- trust, authenticity, caring, transparency, integrity, learning and empowerment.
There is a growing trend towards decentralised organisation structure as they enable wider control and bottom-up flow of ideas...
Most businesses are a blend of centralisation and decentralisation. As we move towards greater empowerment of employees and a growing recognition that innovation must be encouraged throughout the organisation, more companies are finding that they need to move towards decentralisation. A good rule of thumb is that decisions should be made as close to the customer as possible. Decentralised organisations, when well-managed, have higher levels of employee engagement, innovation and customer satisfaction. They may sacrifice a little bit of efficiency in the process, but they more than make up for it through greater effectiveness.
Reprinted by permission of Harvard Business Review Press. Copyright 2013 Harvard Business School Publishing Corporation. All rights reserved.
