When You Focus on Getting the Best Deal Instead of Developing the Best Relationship

Earlier this week, Stephanie Gleason at the Wall Street Journal reported that “General Motors Co. is fighting to get equipment and inventory from a family-owned auto parts supplier that filed for chapter 11 bankruptcy protection last week, saying a contract dispute threatens to shut down 19 GM assembly plants in North American and lead to ‘tens of millions of dollars in losses.’” The article goes on to say:

Clark-Cutler-McDermott Co., (CCM) a 115-year-old interiors supplier based in Massachusetts, filed bankruptcy Thursday and blamed the move on an unprofitable contract with GM that has drained it of $30,000 a day since 2013 [emphasis mine]. In responses filed Friday, GM accused the supplier of using the bankruptcy process and its position as a critical parts supplier to protect personal interests rather than honor contracts.

As is typically the case, both sides have to shoulder the blame for the breakdown of this relationship.

Why would CCM agree to a money-losing contract? Probably for the same reason so many suppliers accept money-losing agreements: it lacked the discipline to say no and walk away from a marquee customer dangling a very large revenue opportunity in front of it (emphasis on revenue, not profitability). They were like sailors lured by the Sirens’ song, straight to a shipwreck.

And how can General Motors let this relationship with a single-sourced, critical parts supplier deteriorate and fail? Probably for the same reason so many 800-lb gorillas get themselves into this situation: instead of taking a Vested approach to supplier relationship management, they remained a penny wise and pound foolish.

Simply put, as I’ve written many times before (see links below), if you continue to use the same old same old approach to supplier relationship management, you will continue to get the same old same old results.

Coincidently, Yossi Sheffi at MIT published a post on LinkedIn yesterday titled Second Thoughts on Second Sourcing that relates to the GM situation. “Not keeping all of your eggs in one supply basket is an appealing strategy to increase supply chain resilience. But it’s not always effective,” Sheffi writes, and he goes on to outline five questions to assess the risks of multi-sourcing. He also states the following:

Multi-sourcing, of course, isn’t the only way that companies can work to ensure a reliable flow of supplies. The main alternative to multi-sourcing is investing in key supplier relationships [emphasis mine]…But developing these kinds of deep relationships is expensive and time-consuming, and as a result they are typically confined to strategic and, sometimes, critical supplies.

Unfortunately, very few large companies are willing to invest the time, money, and resources to develop truly collaborative business relationships, even with suppliers of critical parts — instead, they continue to take a “What’s in it for me?” approach to negotiations, focused solely on getting the best deal for themselves instead of developing the best relationship.

The bottom line is that unless companies transform their approach to supplier relationship management and how they develop their sourcing strategy, history will continue to repeat itself. The lessons from the failed General Motors – CMM relationship are not new, and neither is the fact that many companies continue to ignore those lessons.

So, you’ve been warned yet again. Proceed at your own risk.

For related commentary, see the following posts: