Many of today’s successful manufacturers are those that forge tight links with trusted suppliers. These relationships range far beyond the procurement of parts for a negotiated price, and extend into true collaboration. But many suppliers are far from achieving that goal. Research by the 3M Company has found than fewer than half of surveyed suppliers feel “fully empowered” to collaborate with partners. So what’s gone wrong? In this conversation, excerpted from an episode of The SupplyChainBrain Podcast, we speak with Jose Varela, 3M’s vice president of sourcing and packaging engineering. He discusses the findings of the report, and reveals how 3M is encouraging deeper relationships with suppliers, yielding far more value than mere cost savings.

Q: Tell me about this survey. Is it the first time you’ve conducted it? How many suppliers were contacted?

Varela: In the past, we’ve done surveys with suppliers, but this is the first that specifically addresses collaboration. We surveyed 237 Tier 1 suppliers.

Q: How did you decide which ones to survey?

Varela: I’ve been with 3M for 28 years. During that time, we haven’t always taken full advantage of the innovations that our partners have offered to us. So I said, let’s put some data on this and find out what they feel.

They were basically all 3M suppliers, but we didn’t identify the questions as coming from 3M. Their answers were about doing business with 3M as well as with other companies in the United States.

Q: There are some fairly disturbing conclusions in the survey – specifically, that only 43 percent of suppliers feel they are “fully empowered” to collaborate with partners. Why are they holding back from making strategic recommendations? What kind of recommendations do they believe they could be making, if they were more empowered to do that?

Varela: In general terms, we encourage our suppliers to collaborate with us - to give us information and technology, or share in the development of new products. But the devil is in the details. Many times we open the doors, but then we start talking about I.P. [intellectual property], or the need for keeping the project secret. So even though we have an open attitude toward collaborating with suppliers – and this is true of 3M as well as my peers at other companies – there are a lot of stakeholders in those decisions. Internally within 3M, we sometimes have feedback from our team saying, “We can’t share that I.P.”

Q: So how are you addressing the problem?

Varela: We want to increase that 43 percent to a higher number. It’s about becoming more transparent. You can’t keep everything just to the benefit of your own company; it has to be win-win. You need to respect I.P., and follow the rules. At the same time, you need to be more flexible.

Q: The report cites several possible reasons for the low level of supplier-buyer collaboration: lack of incentives, lack of customer openness, and a feeling among suppliers that they’re not encouraged or empowered by their customers. What types of incentives would they like to see, that would make them open up and reach out to 3M or other OEMs?

Varela: At a very high level, the main incentive of a company is to sell more products. Many put out the effort, and there’s no feedback or return. There are no extra sales. Sometimes, because of a lack of flexibility, suppliers don’t get the additional business they want. They get lost in the details.

Q: In other words, they ask, “Why should we do this if there’s nothing in it for us?”

Varela: Exactly. From the very beginning, there has to be a win-win relationship. Suppliers say, “You need to share this technology and invest time in helping me to develop a new product, and you’ll have a win, too.” That’s important.

Q: But it goes both ways, doesn’t it? A lot of your suppliers do business with other companies, including competitors of 3M. They’re not exclusive to you. So you would require them to respect your I.P. as much as the other way around. There needs to be some formal assurance of that.

Varela: Yes, and you are touching on a very important point. If we don’t take advantage of collaboration, we may be losing competitiveness. If we don’t have a win-win agreement from day one, then they go to one of our competitors. There are many stories of how supplier collaboration helped one company get ahead of another. That’s why we need to encourage supplier collaboration. If we don’t, there are other places to go in the market.

Q: When 25 percent of suppliers say that they’re being forced to use technology that negatively impacts productivity and collaboration with their customers, what kind of technology are they referring to?

Varela: It concerns supply planning, inventory levels and demand-planning data. There’s a lot of information involved. But sometimes we deploy technology with no return. So we’ve been moving very fast in trying to share all of the information that is relevant and will help us to grow our sales, so suppliers will also have a win.

Q: That’s more of an issue of business-process oversight. But survey respondents appear to be referencing specific types of technology. Are they being weighed down by what they consider to be legacy technology that doesn’t integrate with their own systems?

Varela: Most of the complaints we’ve seen with regard to technology are about connections, how we exchange information. When we focus less on the system, and more on the value of the exchange, we see good returns. For example, at 3M we have a tech forum event, where all of our scientists come to learn about technology from 3M or outside the company, and suppliers present demos. This is a very easy way to encourage collaboration, and people love it. We’re saying, don’t focus a lot on trying to have the best connection with the supplier before starting to work. Once we have a good strategic relationship with a supplier, we can look at having our computers connected for all of our processes. But at the beginning, that’s secondary. Many times, suppliers complain that we want to have everything perfect, and there’s nothing to exchange.

Q: When this problem comes up, as it has with a good number of the suppliers that you contacted, where within the OEM does the responsibility for the relationship lie? Is it sourcing and procurement? Or should it go higher up, involving other various parts of the organization?

Varela: Modern companies are asking sourcing organizations to be the facilitator. For example, at 3M, my sourcing organization manages contracting and relationships with suppliers. But to be effective, people in research and development, manufacturing and marketing all have to be part of the team. In some cases, we’ve opened the door with suppliers, but haven’t been successful in getting R&D or manufacturing to also work with them. The process ends with no gains to us, or the suppliers. That’s why we’re asking sourcing to be at the table early, when we’re developing products or looking for new business, so that we can give the company our preferred suppliers. Or, if manufacturing and R&D have their own preferred suppliers, we can incorporate them very fast into our list. That’s when things work. I won’t say that it’s the job of one department to do everything. It’s about being holistic.

Q: This must be an immense challenge for a company the size and scope of 3M. You make so many different kinds of products, and have a huge universe of global suppliers. How does 3M prioritize which suppliers are the ones it wants to be reaching out to?

Varela: That’s the one-billion-dollar question. We’ve been doing just that – prioritization. We changed the way that we ask for collaboration from our suppliers. We started with three projects. Now we have 30 that we’re working on that involve real collaboration with suppliers, and on which we’re making progress. That’s number one. Number two, we’re open every day for ideas. That’s why we invite suppliers to participate in expos or in our tech forum. If we see a good idea, we assign resources and ask for teamwork collaboration. Then we start to move the needle.

Another quick win that we’ve seen is around global collaboration. In the past year, we’ve been traveling around the world to visit suppliers. If we’ve already been successful in one geography, it becomes much easier to get traction and success globally.

Q: Tell me more about these forums. Do they involve individual suppliers, or a number of them at once?

Varela: Sometimes they’re specific to one supplier. We’ll arrange a tech forum for one company, to protect the I.P. and confidentiality of its products. We also do tech forums in which we’ll invite all suppliers that have packaging technologies. Then, you might have competitors in the room - it’s kind of a trade show. When we do our supply-chain manufacturing conference, and involve teams from around the world, we invite many suppliers from different areas, but try not to bring together competitors. For example, when it comes to robotics, or making our factories more productive, we might invite 10 suppliers, but from different areas that aren’t competitive.

Q: Was this survey something of a wakeup call for 3M? Is it what drove you to initiate changes in your supplier relationships, or was that already underway?

Varela: We knew at 3M that we had a big opportunity, and that there was something we needed to improve. I would say the results weren’t a big surprise to us. Also, it wasn’t a big surprise that other companies were not excelling. We knew we were missing out on an opportunity, and based on the survey results, we affirmed that we needed to move fast. We saw a big competitive advantage that we could secure if we collaborated more with our suppliers. We do that a lot with our customers, so why not with suppliers as well?

Q: I wonder if one important lesson we can take away from this survey is that when it comes to supplier collaboration, get it in writing up front. For example, laying out specific allowances for I.P. protection, or the formalization of communications channels for enabling supplier input about innovations. Would that be a piece of advice that you would give people?

Varela: Absolutely. We are a very respectful company. We want to play by the rules. But sometimes we’re taking more than a year just to sign the contract. I just think we need to be a bit more flexible. Playing by the rules, and respecting I.P., is so important to us. But also we need to be more open, and start the collaboration as soon as possible.

Q: Do you intend to conduct another survey, to serve as an ongoing report card on 3M’s own supplier-collaboration efforts?

Varela: We want to do it again, but probably more in the direction of how we’re doing in 3M internally. This survey was about both 3M and our peers in the industry. Maybe in three or four years we’ll repeat it, just to see how the industry is evolving.

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