Try Stroking Vendors When Everyone Else Is Squeezing Them

Ann All

When the going gets tough, so do IT executives, especially when it comes to pushing vendors to lower their prices. But an overly tough approach can backfire, through vendors offering sub-par service or trying to offset short-term cost cuts by insisting on longer-term agreements with higher prices later in the term.

 

In a video clip on Supply Excellence, The Hackett Group's Chris Sawchuck says organizations that are too intent on wringing as much cost as possible out of their supplier relationships may suffer when the economy strengthens and demand tightens. The question is, he says:

Are you positioned well enough with those suppliers that you may have gone out and restructured relationships from a cost standpoint, in a way to have them support you when the demand comes back?

The current downturn offers opportunities to engage suppliers in other types of discussions, those involving innovation and other more strategic activities. The key is selecting the suppliers you think will be best positioned to help you in these areas. Says Sawchuck:

This is the time to condition and forge those types of relationships.

Suppliers may be especially receptive to such discussions now, since they are probably having much more combative ones with some of their customers. When everyone else is squeezing them, they'll appreciate some stroking.

 

That doesn't mean cost cuts should be off the table, of course. But try using some of these contract renegotiation tips I highlighted in a post from last October, like these from David Patzwald, CIO of Schneider Electric North America:

  • Include executives other than the CIO. If you can get the CFO or even the CEO to the table, vendors will approach negotiations differently and in a way that benefits your company.
  • Seek vendor input on ways to cut costs.
  • And my favorite, create metrics for both financial and broader "relationship" satisfaction and balance them to ensure that one doesn't suffer at the expense of the other.

For a tutorial on how NOT to renegotiate, check out a laugh-out-loud video clip I linked to in a post from June.



Add Comment      Leave a comment on this blog post
Nov 12, 2009 6:08 AM Eric Eric  says:

In this economy, the successful are fostering better relationships, both with customers and vendors. Sound advice.

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Nov 13, 2009 12:05 PM Raj Menon Raj Menon  says:

Good advice! I am fortunate to be working with a customer who values the relationships we (my company - the vendors) have built over the years. At some point the value of service offered measured in terms of meeting SLAs, "out-of-the-way" support, innovations, etc will definitely surpass the cost of service, in customer minds.

I like your 3rd negotiation tip very much "create metrics for both financial and broader "relationship" satisfaction..."

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Nov 14, 2009 4:23 AM Sunil Malhotra Sunil Malhotra  says:

The most sensible advice I've seen in a long while. We're going through some very tough and unreasonable negotiations with our key customer - a large European automotive company that we've proven value to over several years. I wish one or all of their executives could understand your view.

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