Once you've taken the time to segment your vendors, the next step is to consider closer collaboration with those that you've identified as being key to the success of your business.
At a high level, the main reasons for this are because you'll want to:
- Reduce costs
- Make process improvements
- Encourage innovation in products or services
The first two points both sound quite straightforward but to achieve the third we, as a buyer, need to be open and transparent with those vendors and focus on building trust.
Building strategic relationships with key vendors is a crucial part of vendor management and can deliver competitive advantage so you should consider time devoted to collaboration as an investment for the future.
In a recent PwC survey, nearly 90% of respondents said that they believed that the top management at their key vendors was willing and able to collaborate.
However, the survey also revealed that a lack of executive sponsorship was one of the most important hurdles to overcome.
If there is no mandate from above to develop collaboration programs or there are too few resources available to implement, it will be an uphill battle.
It's a two-way street
It sounds obvious, but collaboration, by definition, requires commitment and effort from both parties.
As a buyer working closely with your key vendors, you should benefit from the latest technologies and developments.
As a vendor, your business relationship becomes more stable with your buyer, meaning you can confidently commit more investment into developing your solutions and to testing new iterations.
Any adversarial relationships with strategic vendors need special attention. They drain resources and waste management time. Finding common ground on which to build a relationship is the first step.
Three areas where collaboration helps
Collaborating for cost reduction
Collaboration can lead to a reduction in costs for both parties beyond the day-to-day traditional haggling.
If you treat key vendors as partners then you can negotiate on factual pricing, not assumptions, improve product specifications and streamline administrative processes.
Collaborating for innovation
Developing innovative solutions to problems means working alongside vendors to support their efforts to improve the quality of products or services.
A regular complaint from vendors is that their proposals for design improvements or speeding up processes are ignored or fail to get the attention they deserve. Opening multiple channels of communication for information sharing is a good start.
Collaborating for greater mutual value
Working together with vendors to achieve improvements both in products and services will not only reduce costs today but will provide sustainable benefits in the future.
For example, better safety measures will reduce lost work-days and employee down-time and may even prevent reputational damage for both vendor and customer.
3 Keys to success in vendor collaboration
Open and transparent communication means sharing data and information. Vendors must first share basic information on their companies, locations, contact details and everything about the products or services they provide.
At the practical level, many companies also encounter difficulties in sharing information and data due to the use of different software applications and ERP systems.
Basic and transactional data can be made available using a dedicated shared portal or cloud-based vendor platform, where the data on which decisions are based is trustworthy, secure and identical.
Define areas of responsibility
Again it sounds obvious, but it is important to define clearly what the desired outcome is for both parties and what resources are required to achieve it. Each party has to commit to making personnel available and maybe even some initial expenditure.
Often, soft-skills training is needed in how to build the relationship. If there is to be any type of gain-sharing this has to be agreed and a method devised on how to share the benefits. If the vendor does not perceive that there is enough value in it for them any collaboration proposal is likely doomed.
Tackle the challenges
Some organisations have a problem with working transparently, thinking that sharing operational and financial information leaves them in a weaker negotiating position.
Building trust is perhaps the most important factor and proving that your intentions are above board is critical.
Effective collaboration based on shared information reduces costs, improves service delivery and stimulates mutual growth. An accepted best practice is to develop collaborative relationships at many levels, both corporate and operational, ensuring overall visibility into a vendor’s wider organization.
The most successful relationships are based on openness and a high level of information sharing.