Good relationships with suppliers are essential for running successful businesses. Managing supplier relationships can be a challenging and resource intensive operation. It would also require time and energy to be invested. Hence, it is important that the management identifies priorities in this area and focus their attention there. Segmenting the vendor base is one practical way of accomplishing this task. That is, instead of treating all vendors in equal footing, giving preferential treatment to key vendors is the right way to go. This is especially valid when the business enterprise is fairly large.
The management needs to assess supplier relationships in terms of their complexity and criticality and then prioritize. In order to ascertain how complex the relationship with a particular supplier is, the following factors should be considered: “1.Number of individual relationships (contracts) your organization has with the vendor. 2. Variety of information products licensed from the vendor. 3. Degree of fragmentation of the vendor group, i.e., to what extent does the group act as autonomous units?” (Brevig, 2008, p.28) Criticality, on the other hand, is the negative consequences that the company would suffer if a particular vendor was not available. Hence, it is fairly obvious that depending on complexity and criticality of any supplier relationship management efforts toward maintain a healthy relationship should be decided. For example,
“If the vendor relationship is uncomplicated and noncritical, you should probably use an opportunistic approach focusing on managing costs. Dealing with such vendors at arm’s length is adequate and the least resource-intensive. For vendor relationships of medium complexity and criticality, a collaborative approach is more appropriate.” (Brevig, 2008, p.28)
Strategic relationships are another option that can be pursued for those suppliers who are deemed extremely important for the short-term and long-term operations of the company. It takes a lot of time, effort and energy to build strategic relationships. It also requires the involvement of top management from both parties to ensure its success. One of the key objectives of strategic management is to leverage the total potential with one solid relationship instead of many. Another aim would be to fully avail of the expertise offered by the supplier. (Bendixen, et.al, 2007, p.3)
Skilful negotiation is another feature of supplier relationships. Negotiation is usually considered an art then a systematic method. Negotiation is defined as the amicable reaching of agreement among all involved parties. Successful negotiation depends on three important factors. The first is the compelling drive to succeed. Second is the strong comprehension of fundamental concepts; and third is good fortune. In essence, success or failure in negotiation is more dependent on “actions, inaction, habits, idiosyncrasies, blinders, insights and clever strategic movements of the individual involved, more than the terms of the agreement or other formal elements of the proposed transaction.” (Hanselmann, 2001, p.60) There are three different types of negotiation. These are:
“The first is internal, which primarily involves managers and employees focusing on work and employee issues, such as job roles, pay, goals, priorities, tasks, productivity and deadlines. The second type of negotiation is external. This type of negotiation occurs between an organization and an external party, such as a customer, a suppler or your insurance carrier. All of us in the credit profession are involved in external negotiation on a daily basis. Some examples of external negotiation are bid proposals, delivery schedules, quality, deadlines, financing and the approval to supply our customers on a credit basis. The third type of negotiation is legal, which involves an organization abiding by the legal requirements of the various governing agencies.” (Hanselmann, 2001, p.60)
Bendixen, Mike, Russell Abratt, and Preston Jones. “Ethics and Social Responsibility in Supplier-customer Relationships.” Journal of Applied Management and Entrepreneurship 12.1 (2007): 3+.
Brevig, Armand. “Getting Value from Vendor Relationships.” Searcher Oct. 2008: 28+.
Hanselmann, Jacob J. “Success in Negotiation.” Business Credit Sept. 2001: 60+.