Customer Partnering

We are proponents using collaborative partnering arrangements to generate competitive advantage. Our favorite type of partnering is Customer Partnering.

Customer Partnering is a unique type of partnering. It is the most important kind of partnering... dealing with the most critical relationships you have... your customer relationships.

It is a way to acquire new customers and defend existing customers from the predation of competitors. You can use it to deliver more value, while protecting and improving your margins.

It's also a way to rechannel the negotiating process into a joint planning process. Why not replace negotiation with a joint planning process to design yourself into your customer's business plan?

Why negotiate when you can plan together? Develop a joint plan. The goal is to create a 1 + 1 = 3 effect. By improving coordination and communication between companies, you can improve quality, cycle time, efficiency, and costs. When you do this right, you modify your organization and operations to better match the needs of your customer, and your customer modifies their organization and operations to better match the capabilities and needs of yours.

Both vendor and customer gain mutual competitive advantage by (a) increasing the net value delivered by both parties to the customer's customer, and/or (b) increase the cumulative cost effectiveness of the coupled business systems.

Generating value is the first step. The second step is positioning yourself to capture your fair share of that new value.

Some of the value will be captured by the supplier in the form of increased margins or sales volume. Some will be captured by the customer. The value can be in the form of better product for the customer's customer, increased profit margins, or improved competitiveness.

Who captures how much of the new value?

A lot depends on the plan you build. What kind of switching costs does each party face? How unique is your product or service? What percentage of business does each party represent to the other? What is the customer's ability to backward-integrate or substitute alternatives? The answers to a lot of these questions are determined by how you plan the negotiations.

Here is one example: Toyota is famous for the close and extensive partnering it does with its suppliers... but it maintains so much leverage in these relationships that it captures all the value generated by the relationship. It leaves very little on the table for its suppliers.

Here is a second example: Microsoft. Most people don't consider themselves Microsoft's partners, but if they look around and ask some questions they will find that they have in fact made substantial modifications to their business processes to accommodate this key supplier and its business processes. Microsoft has managed to build itself into the business plans of most of its customers. In this case, it captures most of the value generated. It leaves very little on the table for its customers.

Most customer partnerings come to rest somewhere in between there two extremes.

We have developed a step-by-step methodology for (a) developing a business plan with a customer that generates new value, (a) creating a place in that plan for your company, and (b) ensuring that you capture your fair share of that value.

In "Customer Partnering - An Executive Guide to Key Practices" by Curtis E. Sahakian we explain how to implement this methodology. For more information:

You can order by phone at 1-800-948-1700 or on-line:

Or contact us to see if we can help you implement a customer partnering.



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Curt Sahakian
Attorney at Law
Chicago, Illinois