by Brian Fielkow
Republished from Entrepreneur, October 15, 2018
Business leaders must give up on that old-fashioned “kiss your customers and kick your vendors” philosophy. Core vendor relationships must be defined by long-term engagement and measurable value-added contribution.
Attempting to squeeze the last nickel out of critical vendors is not a smart strategy. In many cases, the cheapest vendor adds the least value. You could be counting pennies while dollar bills march out the door. If you commoditize your vendors, then expect commoditized service in return. In the end, that race-to-the-bottom thinking will limit a vendor’s ability or willingness to truly add value to your business.
Here’s a more wholesome outlook on how vendor relationships should work. Most importantly, match up a vendor’s business practices with your own. You can deal with vendors best when they share the same business philosophies as you. The more they are in sync with your culture, the more value they can add.
Of course price matters. You first must define what you require from your vendor. Then, create a list of vendors who meet your requirements. Finally, you can engage in a price discussion with those vendors who meet the “apples to apples” comparison that you have defined.
All vendors have a value proposition. As a vendor, what matters the most in the end is that your customer sees your value proposition. You might think you’re delivering value when you’re not really. On the other hand, you might be making it look so easy to deliver your goods or services that value proposition gets taken for granted. As a customer, you have to know whether the value proposition is real or pure fluff. A value proposition is real only if you can measure it. Your vendor should be able to show you how to measure their value proposition and to provide references who can attest. Any vendor who cannot do this does not belong on your vendor list.
My trucking and logistics business, Jetco Delivery, provides an example. The trucking industry is extremely fragmented, and you can obtain a wide range of bids on nearly any load. You have to decide the importance of items such as cargo insurance levels, safety track record, depth of fleet (in case a truck breaks down), on-time performance data and customer-facing technology. Once you have defined what is important and have qualified vendors accordingly, then a price discussion is warranted among those vendors.
Don’t underestimate that importance of vendor loyalty. Here’s another example from my business. People in the trucking industry were at an especially vulnerable point during and after Hurricane Harvey. Customers and our competitors alike were worried about where the fuel was going to come from. This went on for three to four days. We didn’t have that problem because of a carefully synchronized relationship we’d built with our fuel vendor. Not only did they bring us the diesel we needed to keep everything running for the company, they brought gasoline for our employees. I could’ve shopped around for the lowest price from a supplier, but we need peace of mind and reliability to keep our business running. This is what happens when you bring a vendor in, make commitments and receive commitments back.
There may be issues between you and your vendor, but constant communication and a dedication to continuous improvement will make the difference. Have an initial startup meeting with your vendor to establish expectations. Document those expectations in writing. Then commit to periodic reviews to measure performance and value added and to define areas for improvement.
When dealing with vendor service issues, I look for accountability. I expect the vendor to prepare a root cause report as to why the failure occurred as well as a corrective action plan. If the vendor fails to be proactive in their approach, that is my signal to change vendors. It’s not the service failure. It’s how the vendor handles it.
Abandon the mentality that the customer is always right when reviewing vendor service issues. Take a hard look in the mirror. Are there issues in your organization that are preventing vendor peak performance? As an example, we’ve been periodically confronted with customers who expressed displeasure with delivery time frames. In some cases, we found excessive delays out of our control at warehouses. Customers who partner in the solution will find improvement almost overnight. Those who refuse to accept any accountability will rotate vendors with the same unfortunate result.
In brief, it’s easy to send out a blind bid request to a disjointed group of vendors and select the vendor with the lowest price. Keep in mind that the cheapest is not always the best. For vendors to truly build your bottom line, define your needs. Look for points of pain that qualified vendors can resolve. Measurable value-added services often contribute more to your bottom line than the cheapest price does.