Key Account Management is about getting to know your main customers and working together to cut costs
If you have not already done so, now is a good time to be introducing Key Account Management (KAM) to your organisation. It is a process which allows you to build close, long lasting relationships with your customers and provides a framework from which you can take cost out of the supply chain. Important at any time, it is especially so when times are tough.
Many companies have Key Account Managers, but only a few practice the process effectively. The idea is that you select a few key customers, build cross-functional teams with them, developing a partnership approach to the business to take out costs and deliver competitive advantage. In such a relationship both parties are equal and share the benefits of their efforts.
Partnership is a key aspect of the relationship, a concept that was promoted to the construction industry by Sir John Egan in his 1998 report “Rethinking Construction”. More recently it has been encouraged by the Strategic Forum in their 2007 report “Profiting from Integration”.
The concept can be applied by organisations involved in any aspect of the construction industry; Architect, Engineer, Contractor, Supplier and Manufacturer. Egan and the Strategic Forum encourage its application throughout the construction process to bring efficiencies to the industry.
A key element of KAM is changing the buyer/seller relationship. A traditional relationship is very often what is known as “Simple Trading”. The salesman talks to the Buyer who represents his organisation. Inevitably the Buyer wants to talk about “Best Price” and will ignore the benefits that the company can offer which justify a price premium. By talking to other members of the customer’s organisation it is possible to gain an understanding of the real issues for the business and identify ways to take out cost, probably by doing things differently.
Gaining this understanding is the first step in developing a “Partnership” relationship, a term which tends to be abused in the construction industry. This is achieved once there is a dialogue between each of the functions within the two organisations. This should not be seen as isolating the Buyer from the relationship. He needs to agree to, and support, the development of this relationship playing his part in orchestrating the co-operation. This also means that it will only work in those organisations where the Buyer or senior management are forward-looking enough to support the KAM approach.
If you do adopt this approach you will benefit from a better understanding of your key customers, helping you to develop new products and services as well as building a close relationship. As your working relationship becomes closer it will also become harder for your key account to change suppliers as none of your competitors will have the understanding, or infrastructure in place, to support your customer in a cost effective manner. Unless you are failing to deliver value it will probably not be worth your customer trying to change.
While KAM is an effective approach it has to be used selectively. It requires that you build cross-functional teams to work closely with your key accounts. This is resource hungry and expensive. Select only a few accounts which offer good potential for growth, are receptive to the concept of KAM and are prepared to work with you to build an appropriate relationship.
Don’t just apply key account management up the supply chain, think about your core suppliers. Which of these should you encourage to adopt a key account relationship with you. You can then work with them to reduce your costs, giving you further advantages with your own customers.
Having selected suitable accounts your Key Account Manager will need to identify who in the target organisation is important to you and start to build relationships with these people. Introduce colleagues from your organisation who can work to understand the customer’s business and then propose ways that your companies can work together. To operate effectively it needs to involve all functions within the two businesses; design, manufacturing, logistics, marketing, finance, sales, warehousing. It also requires an innovative approach to problem solving. Don’t just address the immediate relationship between supplier and customer, look further up and down the supply chain. How can you help your customer to perform more effectively for their customers?
KAM is a two-way process it requires your customer to participate by taking initiatives and helping you. Perhaps by giving early forecasts of requirements, helping you to schedule better and consequently saving costs, a benefit which both parties should share. Or, if your organisation has a technical expertise your customer lacks, you can give advice and support in these areas.
The theories of supply chain management and integrated supply chains are promoted by Egan and the Strategic Forum. This is the basis from which a KAM partnership can look for unnecessary costs. Savings can be at all stages of the supply chain and usually result from removing unnecessary processes. The Strategic Forum publish a toolkit to help you release value. Visit www.strategicforum.org.uk for more information.
In a Key Account relationship joint targets should be set each year. These are generally, but not always, about removing costs from the supply chain. Note that this is not about the supplier reducing margin, or the customer paying more. It is important to set mutually agreed targets and to then regularly review the progress made in achieving these.
When times are tough and companies are trying to save money, Key Account Management is the ideal solution. By working together to take unnecessary cost out of the supply chain savings can be made without it coming from the seller’s margin. If done properly, it will give both partners competitive advantage and should create a long and lasting relationship to mutual benefit.
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Chris Ashworth, founder of Competitive Advantage Consultancy, provides strategic marketing, research and training services to the construction industry. He is a member of the organising committee for the Chartered Institute of Marketing Construction Industry Group (CIMCIG)
First published: 2nd October 2008, Construction News
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