Article Contributed by Joe Vaccaro, CBM
It was not too long ago that customers kept their providers of goods and services at arm’s length. Things change!! In today’s world, if you want to be successful, you have to consider vendors strategic allies who can bring “value-added” to your company. The key is developing and maintaining relationships with your suppliers that meet and at times exceed the expectations of all parties.
In order for relationships to be effective there are steps that have to be taken to provide the solid foundation from which to build a strong and enduring relationship. Before entering into any relationship, there has to be a period of time where the customer and potential vendor begin to acquire knowledge about one another. This means communicating the values, mission, objectives and goals of each entity. This is just as or more important than reviewing and analyzing a company’s financial statement. This enables each party to see how the other company perceives itself and what it intends to achieve. If there are similar, shared or complementary fundamental values, missions, objectives and goals, the relationship has a greater probability of success than if they were separate and distinct. It is the customer’s responsibilities clearly communicate what they expect from the relationship. Most customer-vendor relationships that fail are because the customer’s expectations were not effectively communicated to and subsequently understood and accepted by the vendor. The vision for the future must be defined and shared at the beginning of the relationship. If the vendor knows at this critical juncture that he cannot perform to expectation during the course of the relationship because he does not have the required resources, then he is legally, morally and ethically obligated to inform the potential customer. It is better for an entrepreneur to decline business that he cannot support than to try to deceive the customer with “smoke and mirrors”. Customers have friends and networked relationships. They love to share war stories. Customers are people and people respect honesty and integrity!
The successful entrepreneurs who evaluate and select their vendors should work only with the “best” vendors in the market place. The “best” for discussion purposes are those goods or services providers who provide the most favorable mix of price, quality and service. Notice, price is not the primary or most critical variable to consider. If a decision to purchase based solely on price is made, without giving due consideration for quality and service then the decision-maker and his successors will most likely live to regret it! If the price was too low, then the supplier was more than likely, anticipating making a profit by not consistently providing quality goods or services and/or after market support. If the price was really too low, then the payment could be rather costly. Payment could take the form of disappointing and possibly losing customers or even costing people their jobs!
The key to establishing a mutually fulfilling relationship is for both parties to jointly determine what the acceptable standards of performance will be. For example, this could mean that all deliveries must be made within one hour from time of pick-up or all orders placed for supplies must be filled within twenty-four hours from time of receipt. If the goods or service provider fails to meet these mutually agreed upon standards then there should be a penalty for non-performance. A financial penalty is preferred since it hits where it hurts the most, in the wallet. Periodically, the performance bar should be raised so that the entrepreneur and the supplier do not become too complacent. The key is knowing when and how to raise the bar that measures performance.
No agreement or contract should ever contain an “evergreen” clause that perpetuates the vendor-client relationship. There has to be a definitive life cycle for each relationship. Otherwise, everyone runs the risk of becoming fat and lazy. If a strategic leader discovers an “evergreen” clause in a relationship that he inherited, he most likely will assume that the vendor slipped something questionable by his predecessor. Also, any agreement or contract can and should be open for renegotiations. Why not, things can and usually do change over time. The costs of a good such as paper or the cost of labor such as an increase in the minimum wage can impact both the vendor and customer alike. Flexibility and adaptability by both parties is essential. The best entrepreneurs are always way ahead of the curve in anticipating the client’s need to possibly adjust the terms, conditions or measures of performance. Management reports provided on at least a monthly basis, serve as the documents for discussion. The presentation of these reports at regularly scheduled meetings provides the vendor with the opportunity to showcase his “value-added” to the client. What vendor wouldn’t jump at the chance to have a friendly audience to not only report accomplishments but to pitch new or improved goods or services? Believe it or not many vendors consider monthly meetings a chore instead of an opportunity to grow within an existing relationship.
Strategic management is more of an art than a science. The entrepreneur has to know when and how to lead the relationship. A strong vendor manager accepts input and advice from his supplier. Good vendors can provide a wealth of information. They have access and entry into many organizations. This enables them to enlighten their clients on new and improved processes, systems, procedures and controls that their other clients have successfully implemented. A successful entrepreneur must always be searching and seeking other sources of supply. They must always have alternative solutions or contingency plans in the event that a provider fails to deliver goods or services and has to be replaced on short notice.
All strategic alliances have a life cycle and that may last a relatively long time dependent upon the ability of both parties to grow and adapt to changing business conditions. There are times when the client outgrows the need of the supplier. For instance, a client in the past may have used a local or regional supplier but because of a merger or acquisition may now require a national provider so that they can now enjoy the benefits of the economies of scale that the local or regional vendor cannot provide. Also, a client in the past may have been low maintenance and high profitability may now no longer be worth the time and effort to maintain because the profitability has significantly declined. The vendor may want to walk away from this relationship or start reducing his costs, which may have an adverse affect on the client’s goods or services. In either case, there should always be room for discussion and negotiating by both parties. Remember, the opposite of a win-win situation is a lose-lose situation!! Vendor managers and their vendors have to stay close so that they can study each other and be prepared for any changes in the conduct of the relationship. This could mean reviewing any available financial information or discussing common issues with fellow clients or suppliers.
There are times, believe it or not, when both parties in a contract forget what terms and conditions were to be met and subsequently someone has to pay a price. Also, there are numerous situations when vendors are constantly monitoring relationships and looking to provide “value-added”. In some relationships, either the client or the provider of services or both become complacent and do not see the need to always strive to improve. This lack of focus and concentration is a recipe for failure.
In conclusion, vendor management requires active participation by the client and vendor alike. Each one has a vested interest in the performance of the other. In today’s dynamic world of business, the strategic alliances a company develops, maintains and strengthens with its key suppliers of goods and services has a definite impact on the bottom line. The successful entrepreneur has to always seek out and build strategic alliances with vendors who share their vision and are willing to work with them in fulfilling the changing needs and exceeding the expectations of their customers.
About the Author:
Joe Vaccaro is a Certified Business Manager (CBM) and an entrepreneur. During his career, he has been on the corporate, vendor and consultant’s side of the desk. This tri-angular perspective enables him to bring real value-added in all his business endeavors. Joe is also a Viet Nam War Veteran with a Total (100%) Service-Connected Disability.
