Originally posted on January 29, 2010
This is a momentous occasion - my first blog post from the air. Taking advantage of VirginAmerica's inflight wi-fi I am penning this missive from seat 23C on Flight 411 from JFK to LAX. Why you might ask? Well for a start to take my mind off the non-stop turbulence we've been suffering since we left New York. (Ooops - upchuck). Secondly because this flight and this airline bring to mind a seldom discussed aspect of procurement, that of brand capital.
When I walk off this plane tonight at LAX (oh speed ye to me thy blessed moment! Ooops - upchuck) I will be one green and weary traveller but my love of flying VirginAmerica will be undiminished. Why? Because for me VirginAmerica possesses significant brand capital. Brand capital, that "feel good" factor for a company's products that allows buyers to forgive the occasional bad experience, causes me to ignore this isolated nightmare because of all of the other delightful experiences I've had flying this airline.
Brand capital is a powerful value lever both to suppliers and to the Procurement organizations that select them. If you are a supplier that consistently exceeds all your service level metrics then your resulting brand capital will prove invaluable when life's occasional slippery spot causes you, your coke and your large popcorn to careen headfirst into your customer's lap. They'll laugh, pick you up and dust you off because they know it's a very rare incident in a Titanic-length success story.
Similarly if you are a Procurement Department that proactively sets out to select and develop suppliers that consistently exceed internal customer expectations then you will develop brand capital with these same internal customers yourself. An example of this is a client of mine that places over 80% of its commercial print spend with one supplier. This supplier has consistently exceeded all minimum required performance metrics for quality, delivery and service since it was selected through strategic sourcing by my client's Procurement Department four years ago.
The one potential blight on this supplier's copybook during this run of excellence occurred during 2008 when prices of some paper grades rose by more than 30%. As you can imagine this printer had to pass on some fairly significant cost increases to my client during this period, even though my client's Procurement Department had negotiated best practice caps and collars on allowable percentage price increases. Despite the stinging blow to my client's print budget the print supplier was not tarred, feathered and duct taped to the front railings. No, the supplier enjoyed brand capital and thus was held blameless for market prices increases over which it had no control (and there lies another lesson - without brand capital you often will be blamed for events outside of your control).
Further, in addition to the print supplier enjoying brand capital directly from its performance my client's Procurement Department built its own brand capital (in this case with the Marketing Department, the main consumer of commercial print) by selecting the supplier in the first place and doing it in a way that clearly placed appropriately high weight on non-cost factors. This would make it considerably easier for Procurement to broach the subject of cost reductions with Marketing in the future because Marketing would know from experience that its quality and service needs would not be ignored in the quest for improved bottom line performance.
So whether you are a supplier or a buyer, I recommend that you proactively work on building the highest possible levels of brand capital with your respective customers. Come on - at least put as much effort into it as you do to maximize your frequent flyer miles or your Starwood points! Be warned - when your brand capital balance gets low and the sky falls you risk the buck not only stopping with you but it being super-glued to your desk.
And VirginAmerica Flight 411? No turbulence for an hour...but here come the Rockies. (Ooops - upchuck). No worries, Mr. Branson - you got brand!
1 Procurement Place
Non-spin commentary on the world of procurement, supported every now and then by the occasional piece of factual information.
Mark is Founder and CEO of SpendWorx LLC, a provider of spend analytics services. Prior to SpendWorx Mark co-founded Treya Partners, a boutique procurement consultancy. Earlier in his career Mark held various positions at Accenture, GE Aviation and Rolls-Royce.