Companies with advanced procurement functions know that there are limits to the value they can generate by focusing purely

on the price of the products and services they buy. These organizations understand that when buyers and suppliers are

willing and able to cooperate, they can often find ways to unlock significant new sources of value that benefit them both.

Buyers and suppliers can work together to develop innovative new products, for example, boosting revenues and profits for

both parties. They can take an integrated approach to supply$-$chain optimization, redesigning their processes together to

reduce waste and redundant effort, or jointly purchasing raw materials. Or they can collaborate in forecasting, planning, and

capacity management$$thereby improving service levels, mitigating risks, and strengthening the combined supply chain.

Earlier work has shown that supplier collaboration really does move the needle for companies that do it well. In one McKinsey

survey of more than $100$ large organizations in multiple sectors$,$ companies that regularly collaborated with suppliers

demonstrated higher growth, lower operating costs, and greater profitability than their industry peers. Despite the value at

stake, however, the benefits of supplier collaboration have proved difficult to access. While many companies can point to

individual examples of successful collaborations with suppliers, executives often tell us that they have struggled to integrate

the approach into their overall procurement and supply$-$chain strategies.

Several factors make supplier collaboration challenging. Projects may require significant time and management effort before

they generate value, leading companies to prioritize simpler, faster initiatives, even if they are worth less. Collaboration

requires a change in mind$-$sets among buyers and suppliers, who may be used to more transactional or even adversarial

relationships. And most collaborative efforts need intensive, cross$-$functional involvement from both sides, a marked change

to the normal working methods at many companies. This change from a cost$-$based to a value$-$based way of thinking requires

a paradigm shift that is often difficult to come by$.$ The actual value generated by collaborating can also be difficult to quantify,

especially when companies are also pursuing more conventional procurement and supply$-$chain improvement strategies with

the same suppliers, or when they are simultaneously updating product designs and production processes. And even when

companies have the will to pursue greater levels of supplier collaboration, leaders often admit that they don$$t have the skill,

lacking the structures they need to design great supplier$-$collaboration programs, and being short of staff with the capabilities

to run them. After all, what great supplier collaboration necessitates is much more than the mere application of a process or

framework$$it requires the buy$-$in and long$-$term commitment of leaders and decision makers.

Buyers and sellers both describe high levels of trust in relationships that they consider strategic. In most cases, that trust has

been built up over time, based on longstanding business relationships. Companies involved in collaborations tend to

appreciate each other$$s capabilities, understand each other$$s businesses, and believe that their partners will stick to the

commitments they make. Companies are less convinced, however, that their partners will be ready to put the interests of the

collaboration above the interests of their own organization. Many interview participants noted that greater transparency over

sensitive areas such as costs was key to attaining the highest level of collaboration but said that this goal was often difficult

to achieve. Building trust takes time and effort. Often this means starting small, with simple collaboration efforts that deliver

results quickly, building momentum. This way, companies can demonstrate a serious approach to collaboration and their

willingness to share gains fairly. More importantly, companies should base their relationships on transparency and

information sharing as a foundation, with the expectation that greater trust will follow.

Cosmetics company L$$Or$$al follows this approach to encourage collaborative innovation. Through open dialogs concerning

company goals and long$-$term commitment, L$$Or$$al has been able to establish an effective ecodevelopment process. The

company$$s annual $$Cherry Pack$$ exhibition, for example, offers suppliers a preview of the consumer trends that the company

will be working on$,$ and asks them to develop packaging solutions in harmony with these trends. During the exhibition, L$$Or$$al

creates a trust$-$based forum for suppliers to present the ideas and products in development$$including ideas that have yet to

be patented. The forum thus gives suppliers access to practical short$-$ and long$-$term ideas and projects that ultim