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Creating an Honest Supplier Relationship

By January 17, 2017 No Comments

Last month, I published an article about creating strong supplier relationships. In one section, I proffered that you can only create a strong supplier relationship if it is  “honest.”

After the article was published, I received feedback from a friend of mine who works in another industry. He oversees contact center sourcing for a Fortune 100 company and is responsible for sourcing nearly $100 million in services, year after year.

We talked about what it meant to have an honest relationship with a supplier. He shared several thoughts with me, but one statement really stuck out. He said (and I paraphrase), “Bryce, I don’t think my suppliers have any idea how critical they are to our business. We go to suppliers because they do this better than we can. We are willing to work with suppliers to make them better because it makes us better. The problem is, most people are unwilling to have a truly honest conversation about where they need to improve.”

This statement got me thinking a bit more about what it means to have an honest relationship with your supplier. Here are my thoughts:

1. As a supplier, be honest about your capabilities

Several years ago, the company I was with sent out an RFP for telecom equipment. The RFP was very specific. We were looking for an on-premises switch to support a 3,000-seat call center.

We received dozens of responses from potential  suppliers. These suppliers ranged from industry leaders to fringe players. The costs varied wildly, so we went through each RFP and did our best to objectively pre-qualify companies. From that list, we invited our top five prospects to our headquarters.

At our headquarters, each vying company would have 90 minutes present to our team. Typically, these companies would bring five or six people—usually a sales person, a few technicians, and one or two executives. When we did our cost estimates, we determined a RFP likely costs a company close to $35,000, once you factor in research, response preparation,  time, and travel. When they say it takes money to make money, they probably didn’t specifically mean RFPs, but it certainly applies.

Our fourth presenter was a fringe player. We had concerns about this supplier’s capability, but based on the responses we saw in the RFP, along with a very low price, we wanted to hear what they had to say.

The company made their presentation and we moved to the Q&A session. Our CTO spoke up and began asking specific questions about equipment performance. I watched as this supplier’s techs began to squirm.

The typical question:

“In your RFP, you stated your switch could blah, blah, blah…”

The horrifying response:

“Well, it hasn’t been tested, but our team is confident we can make it work.”

End scene.

Clearly, this supplier did not move through to the next round. This is how a business flushes its money down the toilet. If you misrepresent your capabilities, it will come back to bite you. Why waste money and time unnecessarily?  Be upfront about what you can do. Invest your time and money improving your capabilities, not trying to cover them.

2. As a supplier, share your future plans

I used to oversee a relationship with one of the major telecom companies. The company I was with provided millions of dollars of services across the United States.  We operated several on-shore offices and based on direction from this customer, prepared to open another.

We met with this company for quarterly business reviews. While much of each review  focused on performance, we always set aside time ask about future plans and expectations. Our goal was to continue to shape our business to fit the needs of our client. We had invested significant dollars on facilities, equipment, and people to ensure we were exactly what our partner needed.

I remember one fateful October. We had just completed our second quarter business review when our partner manager turned to us to let us know her company would be consolidating operations and moving the business to Central America. The office we were building would be unnecessary.  Talk about a blind-side.

Some of you will say business is business and you have to do what is necessary to survive. I understand.  That said, I found this particular pivot supremely arrogant. There had never been any conversation  about this business shift. In fact, for several months, we had been told to accelerate our site opening.

From that point forward, the relationship with this customer was damaged. Our employees started to panic and several left to find other jobs. Meanwhile, the customer ran into significant delays in South America.  When they approached us about staffing up to cover their shortfall, it was an ugly meeting.

In the end, the customer needed our support. They got it,  but not until they had signed a three-year contract extension with severe early-termination penalties.

There is a harsh reality here. The company I was with did not have offices in Central America. Clearly, we were not in position to create this new capability. The customer needed something we did not have. That said, this customer put our business at risk by acting as if things were status quo, despite the rapidly approaching  dead end. Yes, it would have disappointing to have been told our relationship was diverging, but it would have been more honest to have identified both the need and our shortcoming before we invested irrecoverable dollars.

I believe when you work together to create a shared partnership, you innovate and create together. It does not mean a company is responsible to cover for a supplier’s shortcomings, but no party should ever feel mislead (particularly when investments are being considered).

3. It is mutually beneficial to share each other’s expectations

suppliers with telarus master agentThis is business. You need to look out for yourself. When you are working with a supplier, you should be absolutely clear about what you are looking for and what you expect.

There are four questions worth thinking through anytime you engage a potential supplier or partner.

  1. What’s in it for me? 
    This seems easy, but I regularly see partners who miss out or misunderstand the benefits a particular supplier might offer. You should know who you want to engage and why.
  2. What’s in it for them? 
    Why would a supplier want to work with you? Simply bringing business to the table may not be enough. Does the supplier have confidence you can close the business? Is the supplier comfortable with you representing them?
  3. Is this relationship worth it? 
    I know the idea of walking away from some opportunities is not universally appreciated. That said, if you can’t identify whether an opportunity is worth your time and attention, you won’t be in business long. I prescribe to the idea of “failing faster.” Walking away early is much better than going down with the ship. Don’t let the pot of gold distract you from how much time and effort it takes to get it.
  4. Can WE deliver? 
    There are two parties in a  deal. Can both deliver what they promise? Mickey North Rizza at IDC said, “It’s mutually beneficial. If you are aligned with your suppliers and treat them as partners, both businesses will experience higher success rates, decreased risks,  enhanced collaboration, and innovation. Studies have found the top procurement teams that have successfully aligned with their key suppliers have improved supplier capabilities of innovation, quality, reliability, costs/price reductions, and agility to reduce risk factors. Greater value can be achieved for both businesses, something that would be difficult to achieve if operating independently.”

4. You are honest in your criticism

When there are problems are you talking about them? Can you have an honest conversation with your supplier about what is not working?

Justin Brown published an article called Four Steps to Rebuilding Customer-Supplier Relationships. It’s a good read focused on when a relationship has already fallen apart. However, I found the introduction to be useful in measuring your current relationship state.

“The most important part (of the relationship)…is to identify and acknowledge the mistakes that were made on both sides. Ask the following questions and examine your answers carefully: Is this relationship in turmoil? If so, what were the actions that created this tension, and why were those actions taken? What were the outcomes of those actions, and what position are you or your suppliers in now as a result? How does the supplier feel toward you, and how do you feel toward the supplier? Do you deem the relationship to be weakened, damaged, or severed? Is the relationship meaningful for your company, and will improving that relationship bring value to both parties? By answering these questions, you will define the roadmap toward reconciliation and improved effectiveness—or to accepting a separation, if that proves necessary.

Once you have determined that the relationship is worth repairing or saving, it is time to pursue open and honest communication with that supplier. Integrity and trust are the basis for any relationship, and addressing difficult topics in a frank and objective manner will be appreciated by everyone involved.”

5. You are honest in your appreciation

This doesn’t require much explanation. We all know much it means when we receive positive feedback for our work.

“As we express our gratitude, we must never forget that the highest appreciation is not to utter words, but to live by them.” -John F. Kennedy

How can you show appreciation to supplier? Here are a few ideas:

  • Tell them they are appreciated
  • Serve as a reference for them
  • Bring them additional business
  • Write a recommendation (LinkedIn is a great way to make it personal)
  • Give them your time

An honest relationship will benefit your business. What else can help you create an honest relationship?

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