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Vendors and suppliers are often measured on their contribution to a company’s success on three simple factors: whether they deliver more quickly, more cheaply or more effectively. Yet many suppliers know that they have so much more to offer to companies who are willing to think outside these traditional supplier definitions. Indeed, in the rapidly changing technological environment, coupled with a challenging economic environment, a shift in perspective toward suppliers and their offerings may be a welcomed change for many company executives seeking to reconcile the balance sheet with the company’s long-term needs.
This month, DSN’s cover story takes a look at the various types of existing supplier relationships and seeks to shed light on the value of developing strategic partnerships.
Company executives know that long-term strategies, and the success hoped for in implementing them, must reach across all resources and include outside vendors and suppliers as an integral part of the whole. The shift to outsourcing parts of a business, or bringing in a specific supplier to take care of one aspect of the business—payroll for example—began many years ago and has been successful for many companies. What is the difference between those relationships with a supplier and what we are proposing here as a “strategic partnership”? Let’s begin that answer by defining the types of supplier relationships currently practiced.
Types of Supplier Relationships
Author Kevin Davis, in his book Slow Down, Sell Faster!, divides the supplier/company relationship into three levels, with each relationship having specific characteristics:
- Approved Vendor
- Valued Consultant
- Strategic Partner
The approved vendor, according to Davis, is characterized by having an acceptable price and service, and is called upon by the company for the “sole purpose of acquiring a specific product or service at a competitive price.” Within this level of relationship between company and supplier, the company is looking for a transaction-driven solution and will turn to that vendor who has a good reputation for delivering on time and on budget.
Now, there is nothing inherently wrong with being an “approved vendor.” Though nobody wants to be thought of as lowest on the totem pole, having access to an excellent provider with stellar customer service of task-based transactions is a good part of any executive’s long-range plan. There is a place in all organizations for task-oriented solutions such as payroll processing or 401(k) management, among others.
The way a vendor with a task-oriented transaction differentiates themselves from the competition would be in such areas as follow-up, account management and customer service. There should be no question here concerning the reliability, deliverability or ROI of working with a supplier. Those aspects should be apparent before a supplier makes it onto your “approved” list. The point is there may be some strictly task-oriented services outsourced to an approved vendor, and in the scope of that job they are expert craftspeople who deliver good work. It is possible, however, that within some parts of your business, you could benefit from seeking a different type of vendor relationship.
In Davis’ hierarchy, the second level of supplier/company relationship is the valued consultant—one who provides not only a product or a service, but also exchanges information and shares knowledge with the company team members. This level of supplier exhibits a more forthright interest in helping the company succeed by offering helpful hints or otherwise contributing knowledge that might be in addition to the scope of the project.
Davis says that the valued consultant supplier is “perceived as the ‘go-to’ person,” and that the “variety of potential solutions is both valued and sought-after when a need arises.” Additionally, this level of supplier understands the company’s business processes and even preferences, possibly having been a part of developing them.
The final, and highest, level within Davis’ hierarchy is the supplier who not only delivers a product or a service, but also functions as a long-term strategic partner. A strategic partner, says Davis, helps a company “see the future faster, and in a new and different way.” This supplier continually seeks to add value to every situation, in addition to the products or services provided by the contract agreement. This supplier literally partners with the company and works toward “continuous improvement.”
A strategic partner is in it with you, helps to mutually develop solutions, knows and understands your business goals, turns their knowledge into action on your behalf, is thinking about you when you aren’t there and has a long-term relationship with you. A strategic partner doesn’t attempt a one-size-fits-all approach.
A strategic partner helps a company “see the future faster, and in a new and different way.”
—Kevin Davis, sales management and training expert and author of Slow Down, Sell Faster!
Value Rather Than Cost
Many companies rank the importance of their suppliers by how much money they spend working with them, but in order to determine which type of supplier you need to work with, money actually should not be a primary consideration at all. The rank of a supplier’s importance to the company should be measured by factors such as:
- Does the supplier have a relationship with the company beyond the contract terms? In other words, is there a flow of communication?
- How integrated is the supplier with company processes?
- To whom does the supplier report? Strategic partners most often have relationships with senior or executive team members.
Judy Stubbs, Vice President at Pearson Partners International, a global executive search and talent management firm, says, “A supplier who seeks to become a strategic partner to the customer is in a far better position to build a lasting professional relationship as well as gain a more comprehensive sale for both. The conversation is now about value rather than cost.”
Does every supplier need to be a strategic partner? Not necessarily. It largely depends upon the company’s needs and vision. Strategic suppliers are often woven into the fabric of the company’s daily operating structure, acting as extensions or full-time members for a period of time.
Good strategic partners are generally prepared to invest both time and capital into the building of a successful relationship with company executives. They are invested in supporting their client companies as well as their industry, and they desire to provide the best service possible.
Benefits of Strategic Partners
If developing strategic partnerships with suppliers takes more time and effort on the company’s part, what are the benefits of investing that time and money? The three main benefits, as DSN sees them, are explained below.
Benefit No. 1: Resource Strategy
The first benefit of developing strategic partnerships with suppliers is that doing so allows the company to concentrate its effort on those things deemed most important, while allowing the strategic partner to shoulder responsibility for some other aspects. Every company, no matter how large or how small, has restrictions in some areas—these could be resources, manpower or talent—and it is executive management’s priority to plan the long-term strategies within the confines of those restrictions.
Put simply, supplier partners can focus on their area of expertise and allow the company to forgo hiring in that area. For example, instead of hiring an internal call center or a distribution center workforce in the traditional employee-based model, outsourcing these functions to a strategic partner can free up your head count and provide opportunities in other areas. Alan Pollard, Vice President of Sales at iCentris, a software design company specializing in tools for the distributor, believes that many companies can benefit from engaging a strategic supplier to be a partner from the beginning conversations.
Pollard says, “Often companies decide to do things in-house that could be better and more economically served by a strategic partner. They often may not see hidden or soft costs of doing business in-house.” Reaching out to a trusted partner to have those conversations can help a company build the right departments from the beginning.
In addition to focusing resources on other departments or projects, developing strategic partnerships with suppliers gains a company access to subject matter experts (SMEs) at a higher caliber of talent than the budget might allow for a direct hire. Their expertise can “be called upon for subject-matter expertise for navigating challenging waters,” according to Terrel Transtrum, Founder of ServiceQuest, a consulting firm specializing in distributor retention. He also adds, “The executive and supplier who get to a foundation of trust and common purpose enjoy more efficient, smarter, and potentially more cost-effective solutions. Who doesn’t want that?”
Even when a company hires a seasoned executive with a number of years under their belt and leadership at two to three companies, engaging a supplier as a strategic partner can greatly expand the realm of experience. Paul Adams, Senior Vice President of Strategic Marketing at VideoPlus, a media and marketing communications company, says, “Typically when we meet with a company, we’ve got a collective 50–60 years of experience in the room, and over 100 companies to draw from.”
Keeping pace with the speed of change has become much more challenging for all companies and their internal teams, especially in areas of technological progress. In some cases, strategic suppliers can respond with more flexibility than the company can. Scott Orlinski, President of Smart Office Solutions, a communications solutions company, says, “Suppliers have scalability of services that the direct selling companies themselves often don’t have. We consider the ability to scale to be our responsibility.”
And while it seems clear that companies in a growth spurt benefit from strategic supplier partnerships, so do established companies. Developing partnerships is an ongoing resource strategy for a company of any size. This feeling is echoed by Serena Ayscue, Co-Founder of software company ByDesign Technologies. Ayscue says, “It’s a mistake to think that once you become a big company, you have to bring everything in-house. The companies that are really successful have placed value in building their supplier relationships. In this way, the company can stay on top of the latest technologies, the newest efficiencies and new industry recommendations.”
“The executive and supplier who get to a foundation of trust and common purpose enjoy more efficient, smarter, and potentially more cost-effective solutions. Who doesn’t want that?”
—Terrel Transtrum, Founder of ServiceQuest, a consulting firm specializing in distributor retention
Benefit No. 2: Expanded Research and Development Capabilities
The second benefit of developing strategic partnerships with suppliers is that the process allows a company to greatly extend and expand their research and development capabilities. Suppliers invest in R&D in order to stay on top of their specific expertise. The cost is spread over several clients, and all companies gain the benefit of what may not have been a feasible investment for just one company.
“Suppliers can and should provide the R&D in their area of specialization so companies can keep up with growth and changing technology/practices,” Pollard says. “The internal teams at direct selling companies run the day to day, but suppliers can provide perspective on best practices and emerging trends and technologies from their involvement with many companies.”
Companies often take a “silo” approach to some of the most important components of the business model. For this reason, engaging a supplier as a strategic partner can provide great benefit, for the simple reason that suppliers have seen results from many implementations and many companies, and the learning can be passed on to other companies without infringing upon anything the company considers proprietary.
Paul Piscitelli, President at Paul Anthony Awards, an awards and gifts company, puts it succinctly: “We know what is working and what is not working in the industry. Without giving away private data, we can steer a team in the right direction while in the planning stages.”
There is also vast experience collected within the industry among suppliers who have respect for one another. The companies who engage them also benefit from the knowledge exchange among the experts in the supplier companies. Greg Fink, Vice President of Sales at Next Wave Logistics, a software development firm, explains: “There is respect among competitor suppliers. When companies look to outside suppliers that don’t know the direct selling space I cringe, because there is such a wealth of knowledge here that is being overlooked.”
In addition to addressing specific challenges within a company, engaging a strategic supplier as a trusted advisor can bring about answers to unknown questions. Kevin Griffin, CEO at software media company ROQlogic, says he has seen companies reach plateaus where they don’t know what they don’t know. “The company may not know what they are missing and that enhanced business services can be easily provided by the supplier.”
John Killacky, Managing Director of Sales at Bartha, an events and production company, agrees with Griffin. He says, “Companies sometimes overlook certain business practices that vendors just do as part of their routine and experience in their area of expertise.” In this way, Killacky believes the companies can greatly benefit from the knowledge of the supplier.
When suppliers are utilized more as “strategic partners” versus simply suppliers of a product or service, the company activates all of the resources that a supplier may have, including historical knowledge, experience and even data.
“We know what is working and what is not working in the industry. Without giving away private data, we can steer a team in the right direction while in the planning stages.”
—Paul Piscitelli, President of Paul Anthony Awards, an awards and gifts company
Benefit No. 3: Having a Vested Advocate
The third benefit of developing strategic partnerships with suppliers is that the process creates an additional vested advocate in the success of the company, one who has resources and knowledge that can help the company reach its goals. The strategic supplier is motivated to bring solutions to the table. This can often include insights that spread to other parts of the business because suppliers that are embraced as strategic partners tend to offer far more than the product or service they are known for. This represents added value to the relationship between supplier and company and often results in time and dollars saved and gained.
“Many suppliers also become champions of the industry because they believe in the power of direct selling as much as companies.”
—Alan Pollard, Vice President of Sales at iCentris, a software design company specializing in tools for the distributor
But more than just providing a solution to a problem, developing a strategic partnership means the supplier is fighting for you and with you in the long-term, coming to understand your point of view, your culture, and your strengths and weaknesses, in order to better be a partner. A partner is someone who thinks about the business and engages in the goals more deeply than a non-partner. Adams says, “We’re not just trying to solve a current problem with our partner companies. We are always reaching ahead to figure out the challenges and provide the right solution for the future.”
A partner is someone who understands and aligns with the company’s core goals and strategies, and is actively working toward solutions with their own team of experts on your behalf. “Years of experience in the industry have brought us a wealth of knowledge,” Pollard says. “Many suppliers also become champions of the industry because they believe in the power of direct selling as much as companies. There are some great stories of ‘lifelong’ suppliers who have helped build the industry.”
The relationship is mutually beneficial. Stubbs says, “These partners truly want to have that kind of relationship with the client company, as that teamwork obviously benefits both in the long run. With clients who come to us outside of a search engagement to seek our advice and counsel, we have much deeper, longer term, and mutually beneficial relationships.”
Communication and Metrics
Excellent execution always needs two things to survive: communications and metrics. Communication must occur to keep all parties on task and the goal within sight, and unless a metric has been set no one will know whether the project succeeded. Developing a good course of communication between the company and the strategic supplier can be challenging, says Scott Smith, President of InfoTrax Systems, a software solutions company. When all people involved are busy with their various tasks, it takes effort to keep the communication flowing. But, he says, it’s necessary “to maintain top-level customer service.”
According to Chris Boyle, President and CEO of Access Technology Solutions, a sales and logistics company, the relationship works best when outcomes and roles are defined and communicated. He says, “Then you mutually define growth objectives, expectations, risk tolerances and measurable milestones and let each partner get things done the way they do it best.”
Setting good communication standards and clear metrics is a win-win for everyone, says Janne Heimonen, Founder at consultancy company Hyväheimo. She says, “When you make sure the deliverables are expressed in clear, sensory detail so that there is no doubt at the end of the day if the outcome was achieved or not, everybody wins. It becomes easier to check progress and to adjust the course if needed.”
Many suppliers who wish to function at the strategic partner level have a willingness to participate on committees, even advisory boards, as subject matter experts to ensure all quality measurements are designed, implemented and managed appropriately.
By taking the time to vet a supplier who is sought more as a strategic partner, companies strengthen their decision-making and their ability to execute the best solution possible. The cost of “ownership” of certain decisions versus the cost of “strategic partnership” to help with critical decisions is a new measurement that would benefit both the supplier and the company being served.
Boyle sums it up: “A strategic supplier partner helps chart your long-term future. Their focus is on transformation, not transactions. Together, you navigate unexpected currents and course-correct when industry dynamics shift. They open new doors. They help you see who you need to be, where you need to go and how to get there.”