The Forgotten Relationship – Vendors
The traditional business-to-vendor relationship is quickly becoming extinct. Gone are the days where the sales rep shows up periodically to say hi, you phone in your orders, you flog your vendors for better pricing and you hopefully get what you wanted when you wanted it.
Today, the successful business leader adopts their vendors as partners and you can too starting with these four steps:
- Vendor Selection – There are few business decisions more critical than selecting the companies that will support you in serving your clients. This selection process traditionally started and ended with a recommendation from a friend. If you are going to buy products from manufacturers, it is your responsibility to travel to these plants or offices before you decide on any vendor. Take a plant tour. Ask many questions. Most important, learn the values their company is run by and compare them to your own.
I traveled to a plant in the mid-west United States a few years ago and immediately noticed there were signs throughout the plant quietly proclaiming their core values. I say “quietly” because the core value signs were in poor shape, suggesting to me these core values may not be as integral as portrayed. My suspicions were confirmed shortly thereafter when I asked one of the owners about their third core value and he had no idea what their core values were!
Needless to say, this was an abbreviated visit as there was no chance I would ever do business with this company.
Our company had sixteen criteria (send me an email at [email protected] and I’ll send you the list) every vendor must meet to work with us, and this company failed on the very first requirement.
Another key consideration in vendor selection is technology.
If you have a pricing engine and vendor pricing is required, you will need them to provide an air-tight EDI (electronic data interchange) so you are assured of accurate pricing. You may also expect some specific requirements such as ISO (International Organization for Standardization) or data security standards if you are transmitting any critical data to them. Order confirmations and shipment scheduling are two other critical considerations.
Once all of your vendors are confirmed by your Supply Chain Team, continually assess each vendor including ongoing reporting from your Operations team.
Each vendor should receive feedback regarding everything good and bad with your relationship and face-to-face meetings should be a regular event.
My favorite question to ask every vendor always catches them off-guard… “Tell me how we can be a better customer”.
Vendors are pleasantly shocked to hear this question. It confirms to them that you are committed to a partnership arrangement and it makes your vendor want to work with you.
When you select your vendors carefully and by your standards, you will be on your way to much stronger and more beneficial vendor relationships.
- Pricing – Two critical aspects of pricing will make your vendor relationships improve. The first is your position regarding price negotiation. Most vendors provide guaranteed pricing for the next six or twelve months. You know and agree to this pricing at least by your commitment to the relationship. Occasionally, you may desire even better pricing for a specific situation. If you are a very loyal customer and ask for an exemption, you should expect fair consideration. What kills vendor relationships is constantly flogging vendors for better pricing. That is no way to work with any company. Know your pricing; work within those guidelines; ask for favor only when you must, and respect your vendor’s need to make a profit as they respect yours. Remember, if your vendor doesn’t make money and goes out of business, you lose support for all the product you ever bought from them!
The second pricing component is balance which is complicated and sensitive.
You can give all of your business for a product to one vendor and you would have every right to expect the best possible pricing at your volume level. On the other hand, if you give all your business for a product to only one vendor, you run the risk of having no vendor if something drastic goes wrong. If you can pull off a high level of exclusivity (see below) for your solution, this may not be an issue as this may require a 100% purchase requirement anyway.
Maintaining a proper balance between obtaining the best pricing through volume and hedging against losing a vendor is sensitive – so think it through carefully and ask your Boardroom Metrics Advisor for advice.
- Exclusivity – This may be the most powerful and profitable benefit from refining your vendor relationships. If you sell any product and you can have either a geographic or product-specific exclusivity, it will allow you to sell your product as a “one-of-a-kind” solution! This is a huge competitive advantage for your sales and marketing teams and it will make it easier to hire the best salespeople.
One risk here is obtaining geographic exclusivity for your state and then expanding to another state and finding out that same guarantee was given to a competitor for this other state. Yikes! One solution is to ensure you have the required exclusivity for a much bigger region than you need at the time. An even better solution is to have your products private labeled so the products you are selling are feature-and-brand-unique to your company anywhere you are in business.
- Transparency – This is a key component of any relationship. After one year of doing business together and confirming your values are in-line with those of your vendor, do the following and watch your relationship flourish.
Travel to their location… buy them an expensive dinner… sit with them and present your strategic plan. Tell them what you are doing to grow and become even more successful. Ask them to be your partner and answer any and all questions with complete honesty.
Don’t make them feel threatened because they know some of your secrets, allowing trust to be unspoken and therefore even more precious. Your vendor will be giddy with excitement and consider you their prize customer. You will get attention and care you never dreamed of in the past.
If you wish you had more ‘partners’ to help you grow your business, convert all of your vendors to partners starting with these four steps. I would love to hear about your results and am always available to assist.
I hope this lesson on vendor relationships has you thinking. Best…
“When you’re green, you’re growing’ when you’re ripe, you’re rotten”