Your company is dependent on your current and potential customers. That is self-evident. It is drummed into you in your corporate infancy, and reinforced by gurus and professional bodies. The IoD's latest booklet on customer retention reinforces the need for excellence of service and the careful selection, over time, of those customers that are commercially sensible for you to do business with. You probably even train your key staff in customer winning and retention techniques.
Without suggesting this objective is not important, my research during 1998 and 1999 convinced me that some businesses, especially in the knowledge sector, pay far less attention to their key suppliers. The basic rule of ensuring supplies of raw material for effective production of finished goods, practised to perfection in the Japanese motor industry, is often ignored when the finished product is a service - mainly the intellectual capital of your enterprise. This omission can have a dramatic effect on your ability to deliver the service you want to your clients
Take, for example, the medium size professional services firm that was trying hard to re-position itself in the market place. It needed to recruit the right people rapidly; provide training for its support staff in handling complaints; upgrade the skills of the senior team in strategic thinking; and move offices smoothly - all within four months. Needing external resources to assist this process, it called on a recruitment consultancy, training company, business school and property manager to help. Two of the suppliers had a long-term relationship through formal and informal contacts, and retainer arrangements with one ensured the rapid mobilisation of advisers. With the other two, however, the assurances of delivery fell below expectations. The firm blamed the suppliers. However, the real reasons included:
- suppliers' written confirmation of verbal orders, and outstanding questions with the firm, were unacknowledged for over three weeks because the manager with purchasing responsibilities had other duties, and also felt bound to consult with his superiors who were away on their own client assignments
- upfront fee payment tranches, although previously agreed and invoiced promptly by the suppliers, were only paid after two months, leading one supplier to question the customer's integrity
- important internal business developments, including the appointment of a new chairman, were not communicated outside the organisation except to their key clients; one supplier read of the appointment in the trade press a month afterwards
- other important developments, including an (ultimately unsuccessful) merger approach, were deemed too confidential to relay outside the organisation, so that in the critical third month of the project, communication with suppliers ground to a halt for no apparent reason. One supplier, who had dedicated a team of their two most experienced consultants to the firm, reassigned them to another new customer. That customer paid invoices promptly, set up regular progress meetings, and dedicated a key contact executive to the supplier. When the professional services firm reactivated the original project, the supplier could not respond immediately.
The end result can be guessed. The firm failed to execute the project on time and with the quality needed to ensure its strategic thrust was successful. Its competitive positioning continued to be eroded until it became the victim of a de facto acquisition.
So, what can you do this year to protect your position? The most effective businesses try to lock in regular suppliers through special arrangements, recognising that a preferred supplier agreement, backed up with a retainer if needed, can help your company operate in partnership with stakeholders in your success. If this is not practicable, you can ensure that suppliers really support your business by:
- providing dedicated contact executives with clear purchasing and supplier control accountabilities
- responding promptly to any major queries
- having regular progress meetings during projects; these can include all the suppliers at one time since they become joint stakeholders in your success
- providing positive and constructively critical feedback regularly
- sending suppliers copies of newsletters, handouts and analysts' briefings even if you are not buying from them all the time
- considering a half day annual conference of your key suppliers: there may be, for example, unnecessary processes that you follow which hinder suppliers' effectiveness. Even more important, tell them of your strategic thinking to encourage them to do business with you - confidences will be respected
- remembering that your best actual or potential suppliers will be diversifying their own customer base and may choose not to sell to you if the whole relationship becomes frustrating
- keeping the best suppliers on tap means you need to treat them as partners
- communicating well in advance with a supplier if you need to modify the relationship and being prepared to discuss any potential problems
- paying supplier invoices on time
Keeping suppliers on side can be just as important as pleasing your clients.