Corporate Finance

How to Reduce Resource Consumption

Rule number one: Build honest, trusting relationships with suppliers.
Shawn CasemoreJune 26, 2012

An article published recently by McKinsey advised companies to engage with suppliers to find new alternatives for reducing resource consumption, thereby improving resource sustainability and reducing costs. That concept has merit, but few suppliers would be willing to share the information necessary to support such an initiative without first building the appropriate relationship, that is.

The reality is, most suppliers do not feel comfortable enough with their customers to venture into a relationship that may require them to divulge proprietary or financially sensitive information. Understanding that dynamic, the following are three effective strategies through which you can engage suppliers to reduce and rethink resource consumption.

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1. Create a Culture of Collaboration.
To enable collaboration with a supplier requires a culture shift from the typical adversarial relationship. The McKinsey article misses a fundamental point. You must first build a trusting and mutually beneficial relationship with a supplier before seeking information relative to resource consumption and process waste. Have you, in fact, shared sensitive information with suppliers to enable them to support your cost-reduction initiatives? If a supplier were to offer recommendations that would reduce costs, would you be willing to share the resulting cost savings with the supplier? A collaborative supplier relationship requires information exchange and sharing of benefits.

2. Set Clear Objectives.
Although Wal-Mart may not be considered the most collaborative organization, before launching its Sustainability Scorecard the company made it clear to suppliers what its objective was: to reduce environmental impact, which would likely reduce costs and improve customer loyalty. The scorecard clearly defined how Wal-Mart intended to achieve the objectives and how suppliers would in turn support the vision (notice I didn’t say “could” support the vision it was a take-it-or-leave-it offer). Have you taken the time to identify your organizational goals to suppliers? Do suppliers fully understand their role in achieving your organizational strategy?

3. Understand that Chains Have More than One Link.
When the message was important, Steve Jobs stood before not only customers but also employees, suppliers, and the media to discuss business challenges, new products, or market trends. Truly managing the supply chain requires communication penetration: managing communication across all levels of the supply chain. It is important to engage the entire supply network in support of significant initiatives, which is no different from engaging employees. If you want the message to be loud and clear, apply the communication-penetration concept.

Shawn Casemore is president of Casemore & Co., a consulting firm specializing in supply-chain management.