The concept of suppliers and customers having such a trusting relationship that they can work together collaboratively and seek ways to reduce the cost of items and that they share information and data on a very open and transparent level was almost unheard of 10 or 15 years ago, but is now becoming much more common place.
Some who have been involved in either procurement or supply for some time and remember just how confrontational the process used to be, are still slightly nervous about it. After all, doesn’t that give the customer the opportunity to beat the supplier over the head and reduce costs until virtually no profit is made?
Well in fact, there is no reason to be nervous about this process; it is actually a mutually beneficial and constructive relationship when it is carried out well, so it really is nothing to fear!
The Open Book Policy
An open book policy is nothing more than an agreement to view data and financial information relating to costs incurred in any one part of the supply chain. So the supplier and customer can work together to ensure that costs are minimised where possible.
Obviously there has to be an element of confidentiality built in to the agreement and the customer will not be able to divulge the information seen to the supplier’s competitors.
Benefits To Open Book Policy
The open book policy, if undertaken correctly will ensure that the supplier is helped to retain the customer’s business, so in turn the supplier will be kept stable and will also be able to meet the customer’s needs.
The negotiations involved in setting up new supply contracts will all be done in a manner that is open and transparent and enables the customer to buy from suppliers that s/he trusts and who offers the best overall value.
Sometimes the customer can even help the supplier by suggesting ways that they may be able to source some raw materials from companies that offer better value for money, thereby reducing the costs of the end product further.
Building A Relationship Of Trust
For any open book policy to succeed there has to be a relationship of trust and it is this which will then further assist the open book policy to succeed. It will not be constructive or even remotely successful if the supplier does not trust the customer.
Larger companies may often invoke open book policies when it comes to their suppliers, but for some new suppliers, it can be slightly nerve jangling, because they are not used to the system and moreover they have not yet built up the relationship to such an extent that there is a real sense of trust there. But as the relationship develops the trust will grow.
Contrary to Confrontation
Using an open book policy with suppliers is a concept derived from Lean thinking. Within this philosophy, there is no confrontation with suppliers, because the Lean way of being is to work on a collaborative basis with the supplier to ensure that the supplier is kept content and that the relationship is based on collaboration.
So there is no room for confrontation within this process and any supplier or customer who resorts to being confrontational with the other party is not adhering to the spirit of the relationship.
If it is used as a stick with which to beat suppliers, they will soon find other customers who will treat them with more respect, leaving the customer potentially with the headache of arranging a new supplier, so it is good business sense to ensure that this the relationship is a respectful one!
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[…] shroud the whole process of negotiation in secrecy, then you will not get very far. Consider how an Open book policy with your supplier may assist you in achieving your aims. 7. Conversely, take care not to simply share ALL your […]