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Golden Rules to Create Value from Vendor Relationships

Golden Rules to Create Value from Vendor RelationshipsDecades back, when Michael Porter talked about the value chain of a business, he was a futuristic thinker. The concept considered the various processes and sub-tasks as building blocks of doing business including inbound and outbound logistics, marketing and sales, operations, procurement, human resource management, infrastructure and technology integration.

In today’s complex and dynamic business scenario, collaboration is the new buzzword. Organizations worldwide realize the importance of being able to get employees from seemingly disconnected functions to talk to each other. Super specialization of jobs is almost passé except for some very skilled physical tasks or extremely niche knowledge workers. And organizations are now relooking at even external collaboration to add maximum shareholder value.

Earlier suppliers, distributors, vendors, service providers and contractors were considered to be outside the business paradigm. They were largely external entities that one could neither control nor share value with. One could perhaps only negotiate with them to derive maximum margins. However, now looking at the value chain more closely, businesses realize that vendor relationship management as a strategic tool is a very powerful game-changer. It affects the bottom-line and impacts quality, turn-around times and customer service scores.

Organizations are now using a few golden rules for vendor management that cannot be ignored:

Treat Your Vendors as Partners

Gone are the days when you could pass off your vendors and suppliers as blurry background identities. The basic foundation is to treat them as equal partners who will share the value you create. If there’s something in it for them, their entire approach to doing business with you will change.

Give Vendors a Long Term Strategic View

The key to successful vendor management systems is the fact that you treat them as much more than one-night stands. Reiterate the fact that you want long term relationships; show them your vision and how they fit into your growth plan.

Build Mutual Business Context Understanding

Meet your vendors and service providers regularly. Keep them abreast of the macro environment and understand their pressures. This will not only help create transparent communication channels, but also go a long way in building trust.

Negotiate Tactfully, but with Complete Honesty

As a business owner, you must look at the most valuable relationships. Unless beneficial, you must never enter restrictive or monopolistic relationships. The key to negotiations is that you must balance your business sense with complete honesty.

A well conducted negotiation, even if it fails to bring the vendor on board, can still go a long way in building a relationship. Create an environment where vendors and suppliers seek out opportunities to do business with you.

Share Expertise

Equipping your partners to be able to cope up with demands, sharing best practices and helping them become the best in their game will go a long way in building good-will and encourage best-in class processes across the value chain.

Assess Performance and Share Feedback

Invest in vendor management solutions,  that will not only help you track, report and analyze critical parameters to evaluate your relationships, but also bring a professionalism and objectivity when it comes to negotiating cost-margins and other softer aspects. Consider investing in trained professionals to manage relationships.

All in all, when it comes to creating differentiated vendor management practices, it requires a bit of business coupled with a whole lot of heart to manage these unique human relationships.

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BiS Team

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