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Achieving Operational Excellence with a Vendor Intimacy Strategy

Softcom

By Softcom on May 29, 2020

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The word ‘Intimacy’ has its roots in words such as ‘inmost’, ‘intrinsic’, ‘impress’, ‘make familiar’. These words are associated with romantic relationships rather than the business space. However, the use of such a word speaks to a paradigm shift in vendor management; from a transactional framework to a more relational construct; from just cost saving to value co-creation.

Prof. Robin Dunbar, who is an evolutionary psychologist, floated the idea that the biologically plausible number of friendships an individual can have at a given time is one hundred and fifty (150) or five (5) close friendships. He gave reasons for this which included: limitations of brain size, attention span, and the amount of time that can be invested. This can also be said of vendors’ relationship management. As companies grow (‘brain size’), there is a strain on time and attention on the core business hence the need to outsource functions not related specifically to that core; which may include services such as accounting, customer service, security, information technology systems, data processing, corporate social responsibility, maintenance, brand management, amongst many others. The degree to which a company leverages on this outsourcing strategy to save cost and harness new opportunities for growth is determined by its vendor intimacy plans. At Softcom, we believe that the benefits of a great vendor intimacy strategy include increased operational excellence, increased brand reputation, cost-savings, increased access to technology, deepened domain expertise, minimized risk of price/currency volatility, reduced quality issues, risk management, and increased leagility (ability to maintain a balance of lean and agile supply chain practices). Our vendor intimacy plan is built on the following:

  1. Vendor Segmentation: As earlier stated, one of the root words for intimacy is ‘inmost’. A significant part of our overarching vendor relationship management strategy is to identify the ‘inmost’ vendors and to create a process for identifying those. As shown in the figure below, in increasing degree of intimacy, vendors can either be approved or tactical vendors, preferred or operational vendors, and strategic partners. These segments are sometimes dynamic and can also be a vendor’s journey hence the need to continually appraise these segments. More time and resources are naturally allocated to the fewer strategic partners in a vendor relationship management framework; beyond the contract management and vendor rating frameworks that may be enough for the more numerous tactical and operational vendors. Practical ways by which we segment vendors are criteria like level of spend, strategic importance to the business, number of business units served by a vendor, complexity of vendor requirements, and the business impact of switching vendors for a service. Simply put, the degree to which a vendor’s service can impact the bottom-line or disrupt operations will determine how intimate the relationship must be/become.

  2. Shared Vision and Strategy: the relationship between our company and a strategic partner embraces both our strategic plans. At all times, we ensure objectives are aligned.

  3. Shared Values: Values are the ‘intrinsic’ identity of a company and its employees. When strategic partners are aligned on values and internal governance, the relationship is likely to be robust and fruitful. It is our belief that shared values engender trust and respect.

  4. Planning and Performance Management Systems: One of the drivers of intimacy whether social or business is ‘knowledge’. Like every other business process, including vendor relationship management, we leverage technology and data. Our decisions on vendor intimacy are data-driven — how much is being spent with a vendor, details of things/service bought, etc. Such information enables us to benchmark and ‘quantify’ our relationships and plan towards deepening them. For example, a 360-degree view of spend analysis enables us identify opportunities for price-volume optimizations thus engaging a partnership with a vendor on that basis. We believe it is crucial to make strategic decisions from these data rather than just a transactional approach. We also believe performance measures should be jointly developed and agreed with our vendors. Metrics employed include compliance with our company standards as well as industry and government standards. Other benefits we get from insights include sourcing optimization and risk assessment. In the nearest future, we hope to unlock predictive capabilities in vendor selection and risk assessment by leveraging AI and machine learning tools making the process more intelligent and adaptive.

  5. Communication: the ‘make familiar’ component of intimacy is driven by communication. The depth of communication between our company and vendors revolves around the vendor’s segment. Communication with our strategic partners are robust, open, timely, bi-directional, empathic, and encompass multi-level functions and hierarchy in both parties. It ensures bottlenecks are recognized early and resolved easily. Our strategic partners are made aware of performance metrics, processes and process changes, and allowed to share feedback and concerns. Teams across parties are encouraged to collaborate to make achievement of objectives more seamless. We also encourage that communication is pro-active rather than reactive. For example, one of the crucial bottlenecks of vendor intimacy and cause of conflict we try to avoid is “timely payments”. To mitigate, we ensure communication is clear on expectations in cases where obligations cannot be fulfilled on agreed dates. Our communication strategies include written communication, physical meetings, phone calls, invitations to company events, etc. We are also currently looking to digitize our vendor experiences.

  6. Documentation: We ensure there is a clear and detailed documented expectation from both parties as regards the business relationship. Details include the service description, price, payment terms, delivery terms, recall terms, communication, etc. These agreements are more collaborative than coercive. They go a long way to reduce the possibility of confusion, disputes, and defaults. Internally, we also have a documented systematic process, so the vendor intimacy strategy is replicable and auditable. Required templates, flowcharts, policy documents, etc. have been created to help guide the team so it is embedded as an organizational strategy rather than a one-off plan.

  7. Risk Management: We believe transparency about risks is important; since how risks are communicated, mitigated, and shared can inform the success of a vendor intimacy plan. We adopt practical ways to evaluate risks by asking for references of previous contracts, vendor processes, quality control, pricing, experience in the area of interest, financial stability, regulatory/ethical compliance, their innovation and technology capabilities especially in these volatile, uncertain, complex and ambiguous (VUCA) times we live in. These effective risk management steps ensure lesser supply chain disruptions, scarcity, and loss of brand reputation.

  8. Rewards: In the context of social relationships, we believe rewards drive repetitive behavior and deepen intimacy. It is the same with vendor relationship management. Our goal here is to increase profitability for both parties. Hence, we ensure the rewards of interaction are far greater than the cost of interactions. Possible benefits come in various forms such as terms or payment, prompt delivery of service, lead generation, access to technology, market share growth, etc.

  9. Competency: From experience, we know that one of the challenges of executing a vendor intimacy plan is the lack of vendor relationship management competencies and skills. Said competencies go beyond traditional cost saving skills. We thus ensure soft skills such as effective listening, oral and written communication, self-management, and emotional intelligence are nurtured among team members.

  10. Think Diversity, Think Global: With globalization and technology, we believe companies are in the position to build cross-border vendor relationships. We recognize the difference in cultures and accommodate such in individualized and tailored intimacy plans.
    The best time to execute a vendor intimacy plan is NOW irrespective of company size. Every organization from a growing SME to a Fortune 500 can benefit from the operational excellence and growth opportunities a well-thought-out vendor intimacy plan can provide. The critical key is how to adapt this strategy to your unique organizational size and market and develop from there in sophistication.

Sequel to this article, we will delve into how SMEs can overcome the challenges of vendor intimacy plan execution by sharing practical tips.