360°IT Blog
Make or break for supplier relationships?
It seems some industries and sectors are further from the end of the downturn than others. The public sector, for example, is still only at the start of its cost-reduction challenges, while other areas - such as parts of financial and professional services - are showing the first shoots of recovery. In other verticals, there's a mixed position. For instance, some retail companies are thriving on a more frugal customer base (e.g. Poundland, Primark, Wilkinson, etc) while the rest struggle to maintain profitability - or even survive. But whatever their position, most companies are asking the question: “How can we get our suppliers to reduce costs?”
There are two extreme responses to this. One is to take a short-term view for maximum, immediate benefits; the other is to work in partnership for a win-win outcome. Where they opt for the former, organisations are demanding contracts be torn up, issuing “cut costs or you’re out” threats to suppliers, or ending a range of individual deals overnight by consolidating on a single vendor.
The problem with such a knee-jerk response is that a business's long-term position with vendors is based on individual and organisational relationships. Damaging those relationships for short-term gain is going to leave someone bearing a grudge - which could well come back to haunt you at some point.
The alternative, of course, is to recognise where a relationship is important and negotiate with vendors to find common ground. A classic example is to trade cost reductions for deal term increases, but there are other ways you might help your partners. New business is always valuable to a supplier, so smart clients think about how they can help partners with, for instance, reference site support, case studies and testimonials.
Clearly this is a time when relationships between decision-makers can be made or broken, so whichever way you go you need to consider carefully whether a particular vendor is important or not to the long-term health of your organisation. My suggestion is start with an open and honest dialogue - involve your partners in your cost challenge and address it with them rather than doing it to them!
Tags:
supplier relationships, procurement, outsourcing, cost reduction, cost cutting, supplier relations, partnership, vendors, consolidation, negotiation, win-win.
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