Managing Your Supplier Relationships

When effective, there's opportunity.

By Gary T. Moore

Distributors are classic “middlemen.” Distributors have always had a tendency to establish relationships with suppliers, then focus most of their attention and resources on customers. However, a changing landscape is demanding that distributors refocus on supplier relationships—and develop a strategy to manage those relationships, instead of just “letting them happen.”

What's Changing
In a globalized world, change is frequent and fast. Changes affecting distributors include:

• Consolidation of customers, demanding more national and global purchasing agreements.
• Consolidation of suppliers, affecting distributor alliances and contracts.
• Seeming “depersonalization” of communication between all players in the supply chain, including distributor-supplier communication.
• Changing fortunes of suppliers and customers that can result in unpleasant surprises. Losing a major customer is bad. Losing a major supplier, or having their performance capability significantly diminished, can be catastrophic.
• Supplier management with little or no distribution experience or appreciation of the importance and challenges of distributors, resulting in poorly thought-out policies having negative effects on distributors.
• Rapid turnover of top management at suppliers.
• Transfer of traditional supplier responsibilities to distributors, i.e., inventory availability, freight management, marketing.

Any of these changes can quickly, adversely affect distributor operations and even survival. On the other hand, effective management of supplier relationships can open up significant opportunities.

Objectives of Supplier Relationship Management
It is important for distributors to establish objectives and then a plan to meet these objectives. Objectives for supplier relationship management include:

• Staying informed on key issues regarding suppliers, including their financial health, capabilities, customer service performance, assessment of your company, their product, business and distribution policies.
• Influencing supplier distribution policies such as pricing, discounts, allowances, freight, channel choices and exclusivity.
• Leveraging supplier programs for maximum effectiveness for your company.
• Supplying meaningful feedback to suppliers regarding their performance, actions affecting distributor's customers and company, trends in the marketplace and new ideas. In other words, distributors are suppliers' eyes and ears on the street, influencing their actions in a positive way.
• Attracting appropriate opportunities to a distributor's company, like new product lines and more geography.
• Being aware of actions of competitive suppliers, including availability of more attractive suppliers for your area of operation.
• Having a “fall back” position should something negative happen at a key supplier.

Supplier Relationship Management—Whose Responsibility?
Supplier relationship management is the responsibility of distributor top management, including the dealer principal. Building and leveraging supplier relationships to enhance a distributor's effectiveness and survival must be top-down driven. The key personal relationships are at the top. Others who must be involved include sales and marketing executives, operations management and, increasingly, information technology (IT) managers.

Where to Start?
One starting place is a meeting (possibly incorporated into the distributor's yearly planning cycle), facilitated by distributor top management, to focus on the issue, establish objectives and assess the situation with current suppliers. A first step is to understand that “all suppliers are not created equal.” Primary initial focus should be on relationships with your most important “A” suppliers. These are the suppliers which, if they disappeared tomorrow, would threaten the existence of your company. Some distributors have only one “A” supplier; others have more. Then identify the “B” suppliers—significant, but not life-threatening. All others are...well, just “others.”

After discussions about the importance of supplier relationship management and identification of “A” and “B” suppliers, objectives should be formulated using the list on the previous pages as one guide. The next step is to assess recent and current actions and relationships with “A” and, as appropriate, “B” suppliers.

Develop an action plan to meet objectives with specific responsibilities, timelines and, most important, feedback mechanisms.

How Are We Doing?
The most basic step in supplier relationship management is “Do your job.” The real strength of distributors lies in excelling in your market. Then, even if something happens with an “A” supplier, you'll be in a position to attract another “A.” It's also important for distributors to be perceived by their “A” suppliers as doing a good job.

Almost all suppliers have distributor evaluation mechanisms (formal or informal). Supplier evaluation parameters for distributors often include: sales volume and growth, sales mix (selling their more profitable products), prompt payment, market share, participation in programs, customer development and customer service of national accounts. Distributors need to understand their key suppliers' distributor evaluation system in detail, and then know how they are rated in that system. One way to do this is to ask them: “What is your distributor evaluation system, and how do we stack up?” Supplier perception of your company can be tested by your management team asking supplier visitors to your company questions like the following:

• How are we perceived by your company?
• What are your more successful distributors doing that we aren't doing?
• Where are we falling short of your expectations?

Of course, answers should be fed back to distribution top management and your supplier management team. Not meeting supplier expectations can trigger improvement efforts on the distributor's part, discussions with top supplier management to get the story out better, requests for help from the supplier or, in extreme cases, seeking out alternative suppliers more in tune with your company's strategies and way of doing business.

Actions to Manage Supplier Relationships
Schedule top planning meetings yearly or bi-annually with supplier top management. Distributors may need to initiate these meetings. If possible, the location should alternate between the supplier headquarters and the distributorship. The agenda should include mutual evaluation, review of key supplier programs and distributor strategies and plans, feedback about the market trends and customer actions. There should be a previously established, mutually agreed-upon agenda.

Listen carefully to everything your suppliers say, particularly when it's specifically about your company. Take it seriously.

Disseminate performance reports provided by suppliers to key distributor managers. Get their reaction. If your view of your company performance is significantly different from your suppliers' view or there are extenuating circumstances, respond to their reports formally.

Admit the need for help and ask for it when you are falling short of agreed-upon performance expectations in specific areas.

Initiate intentional outreach by top distributor management to top management of suppliers. Get to know them personally. Play golf. Share meals. Go visit them. Invite them to visit your company. Share jokes. Ask about their families. Exchange letters, e-mails, etc. Blast through the impersonal e-mail, voicemail and “gatekeeper” systems. Personal relationships matter.

Let supplier management know if you are looking for more territory or product lines.

Participate in distributor councils—give positive as well as negative feedback. Don't be perceived as a constant whiner.

Encourage suppliers to hire some management with distribution experience (not from your company, of course!).

Encourage peer-to-peer personal relationships between distributor and supplier management and some key operations interface personnel. Expect it of your people.

Participate in supplier special programs, sometimes even when you don't want to. Show up (or have appropriate representation) at meetings called by your suppliers.

Pay special attention to supplier-distributor IT issues. Supplier requirements are growing and are increasingly difficult and expensive to meet. But they are critical to the relationship. Be sure your voice is heard at the supplier about proposed IT changes.

Be active in industry associations. Go to conventions and meetings. These provide opportunities to build personal relationships with suppliers and opportunities to talk with other distributors about common and competitive suppliers.

Seek out opportunities to meet and get to know key people at competitive suppliers. Again, industry conventions and conferences provide this opportunity.

Have conversations with fellow distributors about common suppliers. Get other perspectives as to “what's going on.”

Seek ways to give your distributorship industry visibility. Write articles for supplier and industry publications, make presentations, send press releases on positive things happening at your company, send unsolicited letters and e-mails. This can be particularly important for distributors in small markets who need to stay visible with suppliers.

Establish criteria and rate your suppliers internally (confidentially, as appropriate).

Create supplier awards. Establish criteria, publicize them, invite top supplier management to town to receive the awards in a positive forum. Publicize the awards in industry publications. These get attention.

Consistently review public sources of information about current, competitive and potential suppliers. Read annual reports, industry publications. Get D&B reports on your suppliers. Subscribe to www.hoovers.com.

Create a professional atmosphere about suppliers within your company. If negative attitudes develop about a certain supplier, investigate the reasons, but don't let casual language (which always gets back to suppliers) turn unprofessionally negative. Don't “bad mouth” suppliers.

Visit other distributors and discuss suppliers, while also benchmarking best practices.

As appropriate, create buying groups, strategic alliances or other associations of related distributors. Objective: clout.

Driving the Process
As the world becomes smaller and change accelerates, it is increasingly important for distributors to actively manage their supplier relationships—particularly the relationships with “A” suppliers. It should be a strategic, planned, monitored activity involving all distributor management, driven by distributor ownership or top management. Out of this process, distributors have a better chance of managing change rather than just reacting. Like all relationships, supplier-distributor relationships take work!