A long-term relationship between purchaser and supplier is necessary for best economy.
—W. Edwards Deming 
Lean-Agile organizations deliver value to their Customers in the shortest possible lead time and with the highest possible quality. Wherever applicable, they engage Suppliers to develop and deliver components and subsystems that help them achieve their mission. Suppliers possess unique and distinctively competent skills and Solutions and are experts in their technology; they can provide a high leverage point for fast and economical delivery. Suppliers therefore participate in most Value Streams, and value delivery is very much dependent on their performance.
This article discusses how Suppliers are integrated into the value stream. How this is accomplished is somewhat dependent on the Supplier’s own development and delivery methods, but, in any case, the Lean-Agile Enterprise treats Suppliers as long-term business partners and involves them deeply in the value stream. Further, these enterprises actively work with Suppliers to help them adopt Lean-Agile Mindsets and practices. That increases the economic benefit to both parties.
Suppliers play a key role in SAFe. Due to their unique Capabilities and Solutions, they represent significant economic value opportunities. To achieve the overarching goal of delivering value to Customers in the sustainably shortest lead time, Suppliers can have a large impact on lead time and value delivery of the Enterprise’s Value Streams.
Suppliers can be external to the enterprise, or they can be other value streams within the organization. But enterprises are well aware that Suppliers have their own mission and their own solutions to deliver to other clients as well, not to mention their own Economic Framework. In order for both organizations to achieve optimal results, close collaboration and trust are required.
Historically, however, industries have suffered from the classic approach of dealing with Suppliers by delegating their selection and contracting to purchasing. The focus there is usually more on pricing than on whether or not the Supplier’s solutions and services are an optimal fit for the buyer’s purpose and culture, both now and in the future. Moreover, it can even be customary to routinely switch Suppliers in search of the lowest price possible, and to resource Suppliers across the globe in the lowest cost venue. Then, after a business secures a Supplier, they are usually held at arm’s length and notified of information only on a need-to-know basis. They are often assigned specifications, timelines, and even pricing with little discussion.
The Lean-Agile enterprise takes an entirely different view, one that builds a far more collaborative, long-term, and trusted relationship with Suppliers. These Suppliers become an extension of the culture and ethos of the enterprise; they are treated like true partners. Their capabilities, policies, and economics are surfaced and understood.
However, reaching this state can be a challenge when the Supplier’s basic mindset, philosophy, and development approach are materially different from that of the buyer. Generally there are two cases to be considered: one in which the Supplier has embraced and adopted Lean-Agile development, and the other in which they have not. Most typically, the larger enterprise has to address both, but the goal is the same—a more cooperative, long-term, adaptive, and transparent partnership.
Working with Lean-Agile Suppliers
Involving Lean-Agile Suppliers as contributors to a portfolio value stream is the easier case. The working models and expectations are largely the same, and many current Lean-Agile practices can be simply assumed and extended:
- The Supplier is treated like an Agile Release Train and works in the same cadence as the other ARTs
- The Supplier participates in the PI Planning and Pre- and Post-PI Planning meetings, where they present what they plan to deliver in the next Program Increment, along with an indication of what will be delivered in each Iteration
- The Supplier demos their subsystem or components in the System Demo, participates in the Solution Demo, and continually integrates their work with the rest of the value stream, providing feedback to other trains
- The Supplier participates in Inspect and Adapt, both to improve the value stream as a whole and to help improve their own Lean-Agile practices
In addition to their role as Suppliers and their contribution to the enterprise’s value stream, to the Supplier the enterprise is their Customer. That means that they will and should expect routine involvement of their Customer (the enterprise buyer) in their development value stream.
Working with Suppliers Using Traditional Methodologies
It’s a little trickier to work with Suppliers who employ traditional, phase-gated methods for development. It simply isn’t reasonable or practical for a Lean-Agile enterprise to assume a Supplier will instantly transform to a Lean-Agile paradigm. After all, some Suppliers are much larger than their Customers, and change is not so easy in the larger enterprise. (However, such an expectation may exist for the longer term.)
Due to differences in working models (for example, larger batch size and non-incremental development), the enterprise may need to adjust its expectations:
- Some initial up-front design time will be needed in the early PIs to allow Suppliers to build their plans and to establish Milestones that they can demo or deliver. The Supplier may expect more formal requirements and specifications.
- The Supplier will likely not deliver incrementally.
- Changes to requirements and design need to be understood earlier, and the response time can be expected to be longer.
However, some expectations and behaviors can and should be imposed on these Suppliers:
- In the pre-PI planning meeting, Suppliers should indicate the upcoming milestones and their progress toward them.
- In the solution demo, the Supplier should present the accomplishment during the PI timebox, even if these are documents and not working systems. They should also provide feedback on the demos of the other trains.
- Involvement in the inspect and adapt workshop is crucial, as many of these Suppliers will have longer learning cycles. They should use this opportunity to raise problems encountered in their working process.
In addition, Suppliers may have limited flexibility in adjusting their plans, and, as a result, other trains will need to be flexible to accommodate the Supplier’s needs.
(Note: Refer to the Guidance articles Mixing Agile and Waterfall Development and Technical Strategies for Agile and Waterfall Interoperability at Scale for more information on working with Suppliers using traditional methods.)
Applying Systems Thinking and Decentralizing Decision-Making
Since the goal is to improve the value stream as a whole, it’s important to Apply Systems Thinking in all levels of decision-making about how and how much to involve Suppliers. The cadence of integration with the Supplier, for example, is impacted by their method of work, but also by the transaction cost of the integration. Likewise, how far decisions can be decentralized to Suppliers is dependent on Solution Context. For example, if the Supplier is creating a subsystem that interfaces with the solution through well-established standards, it’s easier to let them take more control. But if it’s a proprietary interface that impacts several other Suppliers and thereby has economies of scale, more negotiation is required. Also, in a highly changing environment, constant collaboration and integration are more important than in environments that are more static.
In addition, setting very specific design requirements might be important in certain contexts but might drive poor outcomes in situations in which capabilities and Nonfunctional Requirements cross several trains. There, an over-specification could cause the Supplier to overinvest in an NFR.
It is important for each value stream to to incorporate such thinking into their economic framework and govern their relationship with Suppliers accordingly.
Collaborating with Suppliers
Collaboration with Suppliers occurs over all levels of SAFe. It starts by sharing Strategic Themes: “Honda tells the suppliers what kinds of products it intends to introduce and what types of markets it plans to cultivate in the coming years” . In order for Suppliers to be aligned with the enterprise, it is important that solution developers share with them what they are going to build.
It is also important to make sure they understand the economic framework that the value stream is working under. And it is equally important for the purchaser to understand the economic framework of the Supplier so that win-win relationships can be built: “Toyota uses the term genchi genbutsu or gemba (actual location and actual parts or materials) to describe the practice of sending executives to see and understand for themselves how suppliers work” .
Collaboration continues by building the requirements together with the Suppliers. Solution Management works with Suppliers continuously and collaboratively to write capabilities and then decompose them into Features. Solution Architects/Engineering work with their Supplier counterparts to design the solution: “At the Toyota Technical Center, the ‘design-in’ room houses Suppliers who work in the same room on the same project” .
The same collaboration should cascade down. Agile Teams develop the actual solution, so it is important to have open communication channels between the Supplier’s engineers and the system builder’s engineers to collaborate on the best design, given the constraints of the architecture and the economic framework. As Toyota’s Supplier guidelines state, “Automobile manufacturing at Toyota is a joint endeavor with suppliers and Toyota. To succeed in that endeavor, we and our suppliers need to work together as a single company. We must maintain close communication, exchanging ideas frankly and coming to terms with each other on all matters of importance” .
In order to enable early integration and improve quality, Suppliers and ARTs need to share interfaces, tests, and simulators. All such interfaces should be documented in Solution Intent so that the information is available to everyone.
As solutions get more complex, there is a general market shift away from Suppliers that create parts and components and toward Suppliers that create higher-value, integrated systems. Even in industries where Suppliers provide work for hire, there is a shift from hiring individuals to sourcing whole Agile Teams, and even to sourcing entire ARTs.
This makes selecting the right Suppliers even more critical. It’s a long-term, high-value proposition. To make the right choice, multiple participants from engineering and purchasing will need to be involved in Supplier selection. Since the Lean-Agile organization will generally seek to have fewer Suppliers (but long-term relationships with each), these perspectives can better consider the long-term cultural and method fit of the two organizations.
Helping Suppliers Improve
It is easier and more productive to work with Lean-Agile Suppliers; they can better fit within the cadence of the enterprise and can better adapt their plans as needed. In addition, trying to improve the value stream without improving supply chains is sub-optimal. To solve these problems, Lean-Agile enterprises work with their Suppliers to improve the Suppliers’ processes and results, to the benefit of both companies. “While other automakers devote one day to a week to developing suppliers, Honda commits 13 weeks to its development program. . . . Honda’s Best Practices program has increased suppliers’ productivity by about 50 percent, improved quality by 30 percent, and reduced costs by 7 percent. That isn’t entirely altruistic; suppliers have to share 50 percent of the cost savings with Honda” .
Inviting Suppliers to join inspect and adapt workshops and other relentless improvement activities, as well as sending engineers who are proficient in Lean and Agile to help Suppliers improve their processes, can have a major impact on lead times and costs.
In order to facilitate effective working relationships with Suppliers, it is important to build an environment of trust between the parties. Such trust is hard to build when the contracts governing the relationship assume something entirely different.
Traditional contracts often lead to a suboptimal result. Deming notes, “There is a bear trap in the purchase of goods and services on the basis of price tag that people don’t talk about. To run the game of cost-plus in industry, a supplier offers a bid so low that he is almost sure to get the business. He gets it. The customer discovers that an engineering change is vital. The supplier is very obliging, but ‘regrets,’ he discovers, that this change will double the cost of the items” .
While this is still somewhat common in today’s market, it does not optimize the economic benefit for either party. In its place, Lean-Agile buyers and Suppliers collaborate and embrace change, to the benefit of both parties. These relationships are built on trust. Increasingly, these relationships can be built via Agile Contracts, which provide a better way of working. This isn’t new, as Toyota notes: “Contracts governing the relationships are ambiguous, consisting of general statements and nonbinding targets” .
Learn More Deming, W. Edwards. Out of the Crisis. MIT Center for Advanced Educational Services. 1982.  http://www.toyota-global.com/sustainability/society/partners/supplier_csr_en.pdf.  Aoki, Katsuki and Thomas Taro Lennerfors. “New, Improved Keiretsu.” Harvard Business Review. September 2013.  Liker, Jeffrey and Thomas Y. Choi. “Building Deep Supplier Relationships.” Harvard Business Review. December 2004.
Last update: 31 March 2016