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The track record for customer-supplier partnerships is not great. The commitment is usually there, but often, after the parties have "shook on it," there is no process that leads to mutually rewarding partnerships.

One approach that works is something we call "discovery," which goes beyond cost reduction tactics to find opportunities for increasing revenues and improving entire processes.

By using fact-based analysis, information technology and strong project management, discovery has transformed purchasing department contacts into broader, deeper relationships, helped suppliers and customers create new value in their businesses, and led to dramatically more innovative products and services.

Partnerships that use discovery are especially powerful in the consumer goods and retail industries because of their low degree of vertical integration. Retailers rely on manufacturers, wholesalers, and distributors for their products. And manufacturers need retailers for access to the end users.

Traditional customer-supplier partnerships focus on supply-chain handoffs and on the interactions between customers and sales reps or administrative staff. The discovery process goes behind those contact points to explore issues that affect the handoffs, such as consumer usage, retail merchandising, promotional effectiveness and pricing.

Discovery relies on investigative teams comprising people from a range of functions in both the supplier and customer organizations to identify issues, such as overlapping services, before these issues have blown up into crises.

Key to the discovery process is rigorous analysis and fact gathering. If a customer's marketing head claims that the problem is in the packaging, he'd better be able to prove it. If the supplier's sales rep says the manufacturer isn't managing the product specs, she must supply evidence.

Consider the relationship between a U.S. truck maker with nationwide dealerships and one of its suppliers, a finance company that provides credit to dealers and consumers. The manufacturer was unhappy with its market share, and the finance company was unhappy with its penetration of loans. Each suspected that the other was responsible.

For the discovery effort, the two companies formed a team made up of people from their marketing, sales and product development departments. As they went through the data, the real causes and solutions emerged. The team learned that the loan approval process was unacceptably slow, mainly because the forms used by the dealers were inconsistent across dealerships and with those used by the loan company's branches. The solution was to standardize the forms.

It didn't end there. In analyzing what kinds of information each company gathered about its customers, the team learned that the finance company knew when loans were to be paid off and the truck company knew the repair records of its customers' trucks. The team combined this information and developed a powerful strategy: Targeted customers would receive personal notes about new vehicles in stock and about special financing they could obtain. The strategy has been a win for both companies.

And there was more. The team discovered that both companies could reap considerable value from combining certain back office operations. To that end, the manufacturer turned over to the finance company many of the functions it had performed on its own.

Finally, the discovery process itself highlighted the need for more communication between the organizations. Neither company knew, for instance, when the other was bringing out a new product. As the team began to discuss the problem, the truck manufacturer's product manager revealed that the company was planning to launch a new model that month, and the loan company's manager responded that his company had data on the new model's market segment. As a result of those findings, the companies are planning a joint launch, including a financial product designed specifically for buyers of the new truck. Both expect a considerable increase in revenues.

The process isn't for the faint-hearted, however. The scope of the investigation and the depth of analysis require trust and hard work. Strong interpersonal skills are needed to keep people from two different organizations and cultures working well together. To get results and reward success, senior management from both companies need to stay involved and "keep the heat on."

The discovery process stretches everyone in both organizations. Senior managers become more active in customer relationships and team members search for innovative solutions. Discovery reduces conflict, improves understanding and creates powerful new alliances for both suppliers and customers.

George Stalk Jr. is senior adviser and former senior partner of

Boston Consulting Group of

Canada Ltd. He is adjunct

professor of strategic management at the University of Toronto's

Rotman School of Management.

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Getting to know yourself

You'll never know what you might discover about your value chain without a few probing questions:

Can you detail your customers' and suppliers' product portfolios, cost structures, and sources of profitability, growth and competitive differentiation?

Do you understand how your product influences various aspects of the value chain, such as production, logistics and quality?

Do you know your current share of volume and dollars across all service offerings?

Do you understand the time and costs in your customers' and suppliers' product delivery systems, from raw material through processing, inventory, distribution, consumption and reordering? Where are the redundancies and time or cost losses?

Can you describe how your end users could be served cheaper or better? Can you describe a stream of product improvements that you could implement for your customers or that your suppliers could implement for you?

Do you know when and why you win bids? How do your customers make decisions?

Can you describe how your customers' and suppliers' demand will shift over the next five years? What products will be introduced and when? What will be the new sources of value?

Do you know how much your customers and suppliers would value each potential product improvement?

Can you analyze your customers' organizations - the quality of their relationships with their customers, the frequency of contacts and how they position their products? Can your suppliers do this for your organization?

Do you know what strategic alliance or product development breakthrough would raise your share and how it would affect your customers and suppliers?

George Stalk Jr.

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