I think very few people believed we could actually pull it off!

It’s been 25 years now. We were a small team with a big mission:

“Build a company, develop a portfolio of heavy commercial vehicle axles, and supply the American subsidiary’s serial production with high quality and deliver reliability in 3 years.”

When we tackled this impossible mission, one thing was clear: We could only do it together with strong, competent partners. Alone? No chance!

The path we chose was unusual back then and still isn’t standard practice today.

But before I reveal the secret, I want to describe the standard approach I typically observe—one that has nothing to do with true partnership. That way, you can judge whether this is also common in your environment.

Everyone Thinks: The Most for Me!

In a way, it’s even logical and understandable. When it comes to business, everyone wants to maximize their profit by using all the levers they have.

If you do this consistently, you can observe the following approach:

* I need something for my project that my organization doesn’t have. So I have to buy it. This could be parts or services. What it is doesn’t really matter—in any case, I have a problem on the table.

* To solve this problem, I search for potential suppliers who have what I need. With some luck, I find multiple offers.

* In this situation, I can now use the competition between potential suppliers to negotiate the best price for myself. The more time I have, the more I can put pressure on suppliers. I hold the stronger position and can use my decision-making power to my advantage.

* I delay signing the supply contract as long as possible, specify the product very precisely, and negotiate hard on every small, individual cost item in detail.

* During this phase, suppliers undercut each other, each trying to offer the best price to win the contract.

* Meanwhile, development is already running at full speed. The developers have to work with all suppliers simultaneously, which means extra work and unclear relationships.

* Suppliers do only as much as necessary to barely stay in the race. They don’t want to invest too much because they know only one will get the contract.

* Once the supply contract is signed, the supplier holds the stronger position. Every change that becomes necessary during product development, they charge dearly for. Now is the time for them to recover what they sacrificed during the bidding phase.

* When we’re in serial production and the time comes for the supply contract to expire and be renegotiated, the arm-wrestling starts again.

* I threaten the supplier that I won’t extend the contract unless they lower the price.

* They calculate how much a supplier change would cost me. In my business, these are substantial sums. That’s why the supplier will explain at length that the previous price is no longer profitable for them and they therefore demand a price increase.

* Each side tries to extract the maximum for themselves. I’m in the weaker position because my costs will rise either way. Either I accept the cost increase or I invest substantial sums to switch suppliers.

* My leverage returns when the next project begins. However, the current supplier benefits from the experience and assets gained during the previous project, giving them a significant competitive advantage over competitors. They will fight aggressively to retain the business, undercutting any rival without hesitation. The supplier knows they can increase prices again once I’m back in a weak negotiating position—which happens with predictable regularity as soon as the product is completed.

* If the supplier manages this skillfully over a long time, they have the opportunity to eliminate all competitors and build a monopoly. Then I’m really in trouble!

And of course, my customer does exactly the same thing with me as a supplier!

Do you recognize this pattern in your environment?

Were you already aware of it, or does it surprise you to see how this actually plays out?

You’ll probably also conclude that this approach isn’t efficient and certainly doesn’t lead to an optimal outcome for anyone.

There’s either a winner and a loser, or even two losers—which is always the case when neither side makes money in the end.

The Way Out: Strategic Partnership

I think it’s clear that we wouldn’t have accomplished our task back then if we had proceeded as just described.

Instead:

We entered into strategic partnerships with our suppliers.

Now I’ll explain how that works and what prerequisites are necessary.

It Starts with a Shared Vision

Unlike the approach just described, my intention here is not to delay the decision as long as possible, but to make it as early as possible.

The supplier decision and contract isn’t based on a detailed negotiated price, but on an agreed compromise based on mutual trust.

I lay on the table what product goals I need to achieve and what costs I can afford to reach my required profitability.

The supplier lays on the table what their product can do and what price they need for their profitability.

Of course, this doesn’t fit together yet. Each side must move away from their optimum somewhat.

I have to make compromises on product requirements and also be willing to compromise on my price expectations.

The supplier may have to invest more effort in their development and also price in cost efficiencies they can’t yet prove.

We agree on a mutually supported compromise that includes risks for both sides.

Trust Is the Foundation, and That Always Exists Between People

The essential difference from the approach described at the beginning is that the basis for the contract isn’t supposedly objective facts, but agreed-upon goals for which both sides must contribute throughout the project to achieve.

That’s exactly the crucial point. Both sides must become convinced that each will do everything to realize the agreed overall optimum.

There can be no “not my problem” attitude here. All problems are shared problems.

This trust only develops when the compromise is intensively discussed. And specifically, the people who also have decision-making responsibility during the project’s implementation phase must talk with each other.

This is exactly where the challenge lies, especially for large companies with this approach. The more people who have a say, the more difficult it is to build trust and ultimately to prove worthy of that trust.

Back then, we were a very small team with full decision-making authority, and we worked with similar partners. Yet even in that situation, I can say from my own experience that it’s not easy to choose the most trusted partner over the one with the lowest initial price offer.

Partnerships and Trust Grow Over Time

Once you’ve successfully brought a project to completion on this basis, both sides have experienced that they can rely on each other. That the trust is justified.

This strengthens the trust basis for the next project.

You don’t just quickly switch suppliers then, but build further projects on this increasingly strong trust foundation.

This creates long-term partnerships that provide security on one hand and enable efficient work on content on the other, because the power games don’t happen.

Even though it might look like a monopoly at first glance, it is something completely different. Other suppliers still exist, even though the partners choose to stick together for mutual benefit.

However, there is no guarantee that a partnership will last forever—that has happened to me as well. When it does break apart, you have to find a new partner.

Profitability and Partnership Aren’t Contradictory — Quite the Opposite

We’re currently experiencing where power-based business models can lead.

Disrupted supply chains, exorbitant costs, and companies struggling to survive.

This exact consequence occurs when one side manages to gain absolute dominance without adequate mutual dependencies.

If you strive for that yourself, you must also expect that the other side might possibly succeed in building up this position.

In a true partnership, this can’t happen. All sides have a common interest and common success.

But it’s also important to understand that you can’t force a partnership. If a partner isn’t trustworthy, it doesn’t change anything if they offer the supposedly best price.

To put it another way: Cheapness is dangerous!

What’s Your Opinion?

I could write many more details about partnerships in a business environment. But before I do that, I’d like to hear from you what you think about the topic.

What’s your opinion?

Are you interested in more details?

Have you gathered your own experiences with partnerships?

Please write in the comments or let’s chat about it.

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