The Bottom Line

5 Tips to Maximize Value in Vendor Relationships

Posted by Strategic Resource Management on Oct 5, 2018 9:00:00 AM

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All manufacturers want to get the best possible deal from their suppliers. However, the definition of “best” is subjective. Every partnership has different goals and non-negotiable points. We’ve found that before starting the contract negotiation process, a cross-functional team is well advised to invest the time to decide what it wants and needs from the relationship.

As simple as it sounds, this basic preparatory step is necessary. Neglecting this vital starting point can result in missing out on key insights and starting off on the wrong foot. In supplier contract negotiations surrounding commodity-type supplies, it may simply come down to cost management. But when contracting for differentiated and/or customer facing services, many additional factors become relevant. For example, manufacturers should also consider their market positioning and go-to market strategy.

A Single Team on a Single Page 
Some believe “the business people should be left alone to run the business” and they should not be saddled with distractions like supplier contract details. While this may seem like a logical approach for the actual negotiating process, it’s crucial that leaders be actively engaged. As the ultimate users of a third-party service, they must be able to communicate their needs, evaluate proposals, and determine the applicable pros and cons. While there is no shame, and in fact tremendous value, in leveraging procurement teams, legal counsel, and outside advisors, they alone generally won’t be able to optimize a service provider relationship without input from day-to-day participants.

However, manufacturers shouldn’t underestimate the value of institutional memory – the loss of key personnel over the life of a business relationship is inevitable, and a producer cannot afford to have its primary source of knowledge walk out the door. It’s smart to lay out a document containing contract highlights while the ink (and memories) is still fresh.

Creating such a document can also help by enlisting additional monitors to note when relevant benchmarks have been met. Many supplier contracts include various benefits (ex. lower prices) that must be formally claimed by the customer once certain (usually volume-based) criteria are met. You’d be surprised how often these available extras are overlooked!

Service After the Sale
Obviously, conditions do change, and there’s no law that fully prevents mid-contract alterations. It’s always a good idea to look at other options before agreeing to add-on services from an existing supplier. If your company adds extra value to the table post-sign, make sure you’re being compensated. And most importantly, be very careful about signing contract amendments as they can easily cause accidental changes to the meaning of existing language.

The “best” deal is in the eye of the beholder. Following these simple steps, however, will maximize the chances of securing a relationship that’s best for your company.

Topics: Manufacturing, Vendors & Contracts