Relationship, Commercial

Commercial relationships include the sum of all ways two or more organisations interact to create value. For example, a government department has a different relationship with a technology partner rolling out a department-wide software installation, than it has with the agency that manages its subscriptions to journals and periodicals. The number of touch points will be different, and the degree of organisational alignment will be different. The topic of relationships with trading parties has achieved widespread attention and in its current manifestation is referred to as supplier relationship management. The subject first attracted attention in the 1990s following research into how Japanese automotive companies achieved superior results to those of their Western counterparts. The reasons were more complicated than simply cooperation versus competition, although many of the initiatives which sought to change buyer-supplier relationships, such as partnership sourcing, alliancing and the new Engineering and Construction Contract attempted to institute cooperative behaviours in certain situations. Those initiatives were based on evidence that Japanese companies did not demonstrate the same indiscriminate selection of suppliers as their Western counterparts, and instead adopted a longer time horizon in their relationships. The outcome of these relationship choices was a higher level of trust, greater organisational alignment and more consistent supply chain processes. In practice, relationships adopted by Japanese companies outside Japan are perhaps more in line with traditional Western relationships, but the consequence of the explosion of academic research into supplier relationships has led to more organisations displaying a portfolio of supplier relationships and seeking to differentiate some relationships through the use of joint working teams and common cross-boundary processes. See also Cooperation, Lean Supply, Supplier Relationship Management and Trust. Commercial Acumen Essentials and Masterclass - Commercial Acumen training is available at Academy of Procurement.

In short

A commercial relationship is the working relationship between organisations that trade with each other: the contract, the money, the people involved and how much each depends on the other.

Types of commercial relationship

• Transactional: one-off or occasional purchases, chosen mainly on price.
• Contracted supply: a supply agreement or panel with agreed prices and service levels.
• Collaborative: a longer relationship with shared plans, joint teams and regular reviews.
• Strategic partnership or alliance: shared goals, shared risk and reward, and senior sponsors on both sides.

Most organisations need a mix. The skill is matching the relationship to the value and risk of what is bought.

Commercial and procurement

In procurement, "commercial" means the money side of a relationship: price, payment terms, risk allocation, incentives and value over the life of the contract. Commercial procurement goes beyond placing orders to shaping the deal and managing it after award, so the value agreed at signing is delivered. "Commercial relations" is also used for trade between countries.

Managing commercial relationships

1. Segment suppliers by spend, risk and importance, as in supplier relationship management.
2. Agree a governance rhythm, such as monthly operational and quarterly executive reviews.
3. Measure performance on a few agreed indicators.
4. Raise and resolve issues early, before they become disputes.

Help with commercial relationships

Comprara adds commercial and contract management capacity to procurement teams through its procurement delivery support service.