It has been well established that building strategic supplier partnerships can have many advantages associated with cost reduction and business efficiency. However, purpose-driven organizations like The YMCA of Greater Toronto can also use partnerships with key suppliers to achieve other objectives, such as alignment with core values, community service delivery and emergency support in times of crisis (such as a global pandemic).
Today, I’m going to talk to you a bit about developing supplier partnerships, and some of the benefits that go with those partnerships that are perhaps some of the more traditional advantages that we often think about. I’m also going to discuss a little bit about developing those partnerships with your own organizational values in mind.
Start with telling a little bit about the YMCA of Greater Toronto. It’s, by some measures, one of the largest YMCAs in the world, actually. They are over 160 years in operation, with the annual budget of over 250 million across 450 locations. It’s got over 6000 full time and part time staff and has the benefit of over 5000 volunteers. We often think about the YMCA as the swimming gyms, the typical health and fitness centers, but Greater Toronto, like many YMCAs, have programs that go far beyond the HFA programs including childcare, camps, employment, education and training, community programs, shelters, and international development programs.
One of the things that makes the Y unique from other organizations providing any of those services is that all are welcome at the Y. Programs are meant to be accessible to everyone, regardless of age, financial situation—anybody and everybody is welcome to attend YMCA programs. More information, as you can see from the website, I’ve identified there.
I wanted to talk a little bit about the value of procurement. We, as procurement professionals, we understand our value. Not everyone always does and partially, that’s because we’re typically associated with cost containment, cost management, driving savings, all of which, of course, very important. We think about the value of well managed procurement and how that extends beyond the financial impacts, we really get into areas that can have much more of an extensive impact on our organizations. We have the ability to add value that goes beyond those financial benefits. I would argue that in order to deliver on that value maximization for our organizations, supplier partnerships can and should be an important piece of that strategy.
The traditional benefits of supplier partnerships—pretty well known, pretty well documented. In developing close relationships with our suppliers, we develop systems, we develop a knowledge of each other organizations. Along with that come some increased capacity, some increased efficiencies as systems are developed. Frankly, we don’t have to go up the learning curve, like we do with new suppliers. This has a great impact on how efficiently both sides of the equation operate, and how our staff create a little bit of room to move. They’re not bogged down with as much work as you normally would be if you’re say, for example, going with a three quote or regular shop around type of strategy. Efficiency capacity certainly advantages that are, again, well documented, well known. I won’t go into too much more detail here.
The other, of course, is the cost reduction side of it. We do have the ability to reduce costs by leveraging our supplier partners. There’s no doubt. Part of that comes from the fact that the cost is so much more than those three quotes that we’re getting. I can’t I can’t resist but throughout the mandatory iceberg slide, we can get caught up in searching for low price and certainly in a three quote approach, you can get caught up with that. We know that the total cost of what we buy goes far beyond purchase price.
Therefore, the considerations that we should have in mind when we’re looking for suppliers goes certainly far beyond price as well. You see a few of them there. Again, it’s a well discussed topic. Depending on what you’re procuring at the time, the quality or service or environmental issues, those all can play a role. The argument would be that it’s much more likely you’ll address some of those if you’re developing deeper supplier relationships.
One of the reasons is that you can address much more of the cost structure on the supplier side if you are working more closely with them. Even from just bringing down the financial element of total costs, using this as an example. If you think for a minute that your supplier profit is roughly 10%, getting competitive quotes or hammering your fist on the table to get that extra 2 or 3%—that’s really all you have access to. If you’re working closer with your suppliers, you have the ability to perhaps tap into some of the drivers that are a little deeper in the cost structure around the contingency or risk that they’re baking in, how much overhead they need to manage your your account, and what some of their direct costs are, in order to fulfill your specifications. If you can work on any of those cost elements, the ability to reduce your total cost as much as much greater, but that typically is only going to come with a deeper, richer supplier relationship.
I’ll just refer to some of the points that Center for Advanced Purchasing Studies that many of you will be familiar with, when they define what successful strategic partnerships look like with suppliers, you’ll see them there and I won’t touch on them all. I’ve highlighted a few that I think are relevant to my time today and what I’ll get into. That’s just the ability of free exchange of information. The ability to have open, clear communication. Finally, that cultural fit and alignment with organizational vision. I think those all caught my eyes as really key to the way we approach supplier partnerships at the Y.
We talked about some of the more traditional benefits of having partnerships, there’s a few more and there are many more, but if we think about some of the other perhaps less top of mind for some. Others may deal with these on a regular basis. I mentioned the reduced staff burden. For us at the Y, it’s important for our staff, in a very decentralized purchasing structure, that we free up as much of their time as we can to fulfill their core duties as staff members. We want them delivering on the mission driven work that they’re working on, not worrying about some supplier issue. We find the more that we are able to leverage supplier partnerships, the more time our staff have to be able to focus on their core roles.
The idea of having access to off catalog products, very similar to if you’re a regular at your favorite restaurant, you probably have the ability to order off menu. In a supplier-buyer environment, it may mean that you have access to some innovations before others do, that you have access to perhaps materials that have since gone out of stock but still exist if you know to ask for them. Just whatever some of those minor differences might be that you have the ability to have access to off catalog products.
If we think about our operations, and specifically, the childcare centers, for example. We have many childcare centers. In fact, most of the 450 locations I mentioned are childcare centers. What that means is we have many small operating sites of operations. One of the challenges we can run into is minimum order quantities. We find that by having deeper closer relationships with our suppliers, we’re able to work through some of the challenges like that. We don’t have the ability to have a lot of storage to get large orders, so we work with suppliers to make sure that we can maybe get around some of their more traditional operating policies.
We do have access, occasionally, to donated materials. As a charity, we’re happy to take anything that fits our requirements, fits our specifications. We find that our best suppliers are keeping us top of mind when it comes to having excess inventory, returns, anything that they need to find a home for. We’re, sometimes, at the top of the list of their calls.
We get into a number of factors that, frankly, really we saw come into play in the last 12 to 15 months, and that will be a little more discussed as I go through the example of dealing with the pandemic and operations through the pandemic. The idea of having security of supply, especially for critical items. The ability to have open communication and access to information, especially when it comes to some of those critical supplies. The ability to work with suppliers to either pause or change or even cancel contracts unexpectedly. All of those, I’m sure sound familiar as we continue to work through some of the challenges associated with the pandemic. Finally, that idea of aligning our values and principles with our supplier base. We do believe that that is a benefit of developing supplier partnerships that you are able to develop and work on that kind of alignment with the things that are important to you as an organization. As a result, you end up getting the benefits of cost reduction and value creation for your organization.
I’d like to walk you through a bit of an illustrative case study using the wise experience through the pandemic to illustrate some of the things that we’re talking about when it comes to supplier partnerships. It certainly has been a roller coaster. Not sure how many highs there have been, lots of lots of dips and downs, but we survived and we have been surviving and we continue to try to survive in part by leveraging our supplier partnerships. We’ll talk a little bit about that now.
At the YMCA, we really had the full spectrum of experiences through the pandemic. On the one hand, we had the full on closure of our health and fitness aquatic centers. Due to government lockdown regulatory requirements, we had to shut down those operations for long periods of time, which of course created really significant financial challenges since those centers are such an important financial legend for us generating some of our revenue. That created stress, of course, losing that and in some cases, almost overnight.
On the other end of the spectrum, some of our services like childcare or our shelters or other community services actually saw an increase in activity, and certainly a dramatic change in operating conditions as health and safety protocols changed and became more critical than ever before. During this whole thing, procurement both at the Y and I think worldwide, I would suggest, became really front and center. Whether it was shortage of supply or securing new kinds of supplies, we heard more about supply chain issues in the mainstream news than I can ever remember. This was an opportunity for we, as procurement professionals, to really step up and support our organizations and add value in some of those ways I refer to that certainly went beyond cost management cost containment driving savings. This was a chance for us to drive value that went far beyond those financial implications.
Some of the challenges we had to overcome were related to the uncertainty that existed. We weren’t the only ones who saw this, but it seemed like information was changing all the time that the parameters and regulatory guidelines were changing all the time. We had to try to adapt our own operations to suit and to meet those changes whether it was related to facility closures, or changing what was required to stay open, or what was allowed for site access for us and for our suppliers. All of these—we saw changing on a regular basis. We found that that notion of really strong channels of communication, rapid turnaround times, accurate communication really played an important role in helping us and our suppliers managed through some of that uncertainty.
I mentioned the financial challenges. We saw that, in some cases, some of our variable costs went down over time because we had fewer attendees. Some went up because we were buying things like PP that we hadn’t had to buy in the same quantities as before. Having to stay on top of some of our variable costs introduce some new challenges.
On the fixed cost side, we found that the challenge of having a drop in revenue that didn’t coincide with say, a drop in our utility costs, for example, or some of the monthly maintenance costs that were in place. That challenge was aligning our cash flow with some of those fixed costs. In some cases, as I mentioned earlier, we had to override cancel agreements. At the very least, we had to work with our suppliers to manage through some of the changes to make sure that we are staying financially viable. It wasn’t just financial, as we all know. The supply shortages for PP and other supplies and critical supplies has been tremendous. Supply chain has been under so much strain, so just availability has been a concern.
That idea of flexibility, being able to adapt to some of the some of the adversity and change around us required a level of flexibility that we hadn’t seen before. We were all trying to adapt on the fly. The supplier partnerships really played an important role in overcoming all of those challenges. On the financial side, we tried not to cancel agreements where we didn’t need to. Instead, worked with our suppliers to try to pause payments, extend payment terms, if possible, just even to align cash flow of perhaps some grants or some funding that was coming in the future. In some cases, suppliers agreed to forego payments or debts owed altogether. Not sure we see that from any supplier where we only have a very superficial relationship with.
Likewise on some of the shortages issues, we had access to supplies when perhaps others didn’t. We were able to tap into some emergency stock at with our best suppliers. Perhaps not be at front of the line because I don’t think we want it to be at the front of the line, knowing that so many essential services and health care, we’re also struggling with supplies. We want it to be at our proper place in line and not be forgotten. I think our relationships with our suppliers help make sure that was the case. With all the change going on, our suppliers were important and valuable in not only adapting with us and making sure that they were flexible with us and taking returns and canceling orders when regulations change, but also even in adding expertise. Many of our suppliers, I’m sure, have expertise in house that we don’t always take full advantage of, and we found ourselves really reaching out and taking advantage of communications, perhaps in some training sessions, tapping into the expertise that exists in our vendor base.
All of the time, through that whole thing. Through it all, we had to stay true to our principles. Despite the chaos, despite the stress, and the desperation that sometimes we didn’t want to give up on some core principles that made us who we are as an organization. One of the things we had to make sure we did, as we saw as you did, suppliers popping up all over the place providing PP and other supplies that perhaps they didn’t didn’t provide before, was managing through the risk of working with non-credible vendor. We had to make sure that our suppliers were legitimate, had the credibility that we’re going to protect our own reputation, and manage the risk for us as an organization. Part of that was making sure we had really quality products and services, making sure that whatever we did buy was up to our standards for quality but also up to the health and safety requirements that were being provided. By, by authorities out there. We had to make sure our staff are properly protected. We were only going to work with suppliers that could provide those minimum standards, no matter how difficult they were to find.
As I mentioned, you know, we didn’t want to be getting more than we actually needed. We knew there are other organizations out there who were also struggling to get supplies. We absolutely wanted to take on a no hoarding approach to this, even if we had the ability to have access to more inventory than we needed at the time, and we thought, “Well, it might come in handy down the road,” knowing that we were taking more than we needed, more than our share was not aligned with our principles. We tried to make sure all the organizations in our community had the supplies they needed. Some of that was with inventory sharing, but a lot of it just came from making sure we weren’t taking more than what we truly needed.
Finally, we had to respect that we were in no position to buy at all costs. As a charity, we had to be financially responsible. We knew that the price gouging was happening. You saw the inflated pricing out there. We couldn’t afford to, financially, or just principally—we couldn’t afford to support that behavior. It comes with knowing your suppliers, working with them on their cost base, and having them understand that your relationship is more important than perhaps the extra few percentage points that they may be able to get from the open market.
Working with our suppliers to make sure that price has stayed fair and in line was an important principle for us. As we think about the experience of the Y through the pandemic and what that means as we move forward for us and for any organization that’s still considering are still developing a partnership strategy as part of their procurement plan, I’d certainly encourage it, because we saw it come to life in the pandemic, but we frankly, we see it come to life in regular operations as well. It just really highlighted some of those additional elements of value that I mentioned through that time of crisis. I’d say it’s a good idea anytime.
If you were to take on a partnership strategy, here’s some of the things I’d say you want to consider. Certainly with those high volume recurring expenses, you want to make sure you’re taking advantage of the cost reduction and the efficiency increase that come with developing those close supplier relationships. You can develop systems, you can have insight and inventory—those are all beneficial with some of your regular high volumes purchases. As highlighted over the last year, you also really want to look at your mission critical supplies. Make sure that you’ve got security of supply for anything that you need to keep operations going in regular time or in emergencies.
Finally, wherever you want to leverage partnership strategy, try to incorporate that into that your own alignment of organizational values. We talked about making sure we did it with our principals through the pandemic, but even through regular operations, consider things like including in your RFPs questions about the practices of your suppliers, and asking if some of their policies and their philosophies align with your own as an organization.
For us at the Y, that includes asking about, say their environmental policies, diversity and social inclusion, inclusion practices, ethical manufacturing. For some, it might include local buying—whatever is important to your organization. Take the opportunity as you seek out and you source your suppliers to check for the alignment of those values as well. It just enhances the depth of your relationship and it makes sure you’re staying true to your own organizational values.
That’s all I had for this session. There’s much more to talk about. I’m so happy to see that scope has made Developing Supplier Partnerships part of this event this time around because I think it’s such an important piece of any good supplier strategy. Certainly something that we value a great deal at the YMCA of Greater Toronto. Thanks very much for listening and I hope you enjoy the rest of the event. Take care.
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