The Bottom Line

The Importance of Healthy Vendor Contract Relationships

Posted by Brad Downs on Jan 5, 2018 11:00:23 AM
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In our last blog post, I recounted the industry changes that SRM has witnessed – and in some cases helped drive­­ — since opening our doors 25 years ago. As a follow up, I’d like to highlight a key principle that hasn’t changed since 1992, one that has enabled us to successfully deliver more than $2 billion in savings – and counting – to our financial institution (FI) customers.

Our founder, my father Curtis Downs, continually stressed the importance of maintaining good relationships with vendors. While that may not sound like a particularly controversial position on its surface, take a step back and consider it for a second. All businesses strive to maintain solid relationships with their customers, and SRM’s customers are the credit unions and banks that we serve. Our success is often tied to the money we save our customers on their vendor contracts, and in that light, one might consider vendors to be our adversaries.

But we have never viewed it that way – in fact, we strive to provide services that ultimately benefit both our customers and their vendors. It is this constructive approach with vendors that I truly believe sets SRM apart in the strategic-sourcing field.

A Healthy Respect

Our business model is powered in part by a healthy mutual respect with industry vendors, requiring a nuanced balancing act. Naturally, the best interest of our FI clients remains SRM’s primary focus. Understanding the drivers behind vendor businesses, including their critical success factors, enables us to craft relationships that benefit both parties. Leveraging this type of knowledge, we can deliver savings to our clients even when renewing vendor contracts with incumbent vendors, as we do in more than 90 percent of cases.

Unless there’s an insurmountable service issue or a lack of critical functionality, FIs almost always prefer to avoid the risk and disruption of a conversion and continue to work with existing suppliers. Here again, our ability to constructively engage with vendors provides an avenue to address any accumulated concerns and to arrive at satisfactory long-term outcomes.

By the same token, an open dialogue between vendors and their clients is essential to a healthy relationship. While some strategic sourcing firms angle to route all communication through them, we believe the resulting distrust often does more harm than good. Our business model involves an unbiased and independent stance, which can be accomplished without creating a hostile environment. Additionally, we support an open and direct dialogue between vendors and our clients. We believe that to do otherwise may indicate a lack of transparency a client deserves.

Striving for the Win/Win

In our experience, a good vendor contract can be put together to benefit both parties. Some vendors have communicated openly that the involvement of a skilled strategic sourcing manager can make the process more efficient, eliminating some of the perfunctory early steps of vendor contract negotiations which can lead to faster closures — a plus for all involved.

Vendor contract negotiations have gotten more complex as the complexity in contracts and the number of vendors expands in the industry. Price is not the only factor to consider when negotiating in this environment. Truth is, it has never been the only factor. There has been give and take in all the negotiations we have been involved in over the last 25 years. The key is understanding what is important to the parties then finding a path to delivering those elements to each. That is not simple but, then again, that’s where 25 years of experience can be a significant asset.

Topics: Vendor contract negotiation, strategic sourcing