When we treat vendors and suppliers badly, it never comes back in our favor. When we treat them well, research shows that it yields big rewards.
Playing hardball is for losers: a case study
Earlier in my career I was in marketing for a large radio station. My manager Rick and I were invited in to make a presentation to an ad agency. I was nervous about the meeting since Carla, the media buyer and a partner in the agency, had a reputation for eating sales people for lunch.
When we got to the “money part” in the presentation, we offered Carla a fair rate along with a value-added promotion. The rate we presented was no more than what other clients were paying to secure their placement in peak audience segments.
Carla stood up and threw the proposal across the desk at us. She made it personal by asking who we thought we were for not coming in at the rock bottom rates she outlined in the RFP (Request for Proposal).
She threatened to boycott our station if we didn’t revise the proposal immediately.
Rick tried to articulate the value of the station but she dismissed us and sent us out the door like humiliated children.
We couldn’t make a decent margin on her business, so we had to cut corners. She was given a cheap rate with the stipulation that her clients’ commercials would not have a secure spot. They would always be pre-empted by clients paying normal rates when our inventory was tight.
Ultimately her spots ran to small audiences.
Carla was known to brag that she didn’t care about being hated by the broadcast community—that her only commitment was to her clients. Yet these same clients wondered why they didn’t hear their spots running in popular times of day, such as morning and afternoon drive times.
Unwittingly they had joined a portfolio of business nobody really wanted. On the other hand, leaders who treat vendors with respect will benefit from their expertise. Vendors can provide benefits that go beyond pricing.
How partnership benefits outweigh price concessions
John Henke, Ph.D., Professor of Marketing in the School of Business Administration at Oakland University and CEO of Planning Perspectives, Inc., conducted a study that showed that profit is four to five times greater when working with suppliers as long term partners, versus the adversarial approach to negotiating for prices concessions.
Henke spent 25 years studying the automotive industry and 17 other industries. His findings outlined the suppliers’ impact on the non-price concessions of 1) quality of products and services; 2) timeliness with the inevitable quick turn-around; 3) competitiveness and innovation since suppliers know the product better than you; and 4) financing during growth phases.
To be sure, it’s crucial to be a savvy buyer and make sure suppliers stay competitive. If you can’t do that, go home. But even savvy buyers can take it to the next level when they think long-term. Suppliers can give you can edge.
Five ways to build vendor partnerships that reap big benefits
- Don’t play from an upper hand position just because you are the one with the power to place an order. When you find a great supplier, treat them like a peer and a partner.
- Be gracious about returning your calls and messages. Don’t set up a game of chase like you’re the only one who is important enough to be busy. A short response will do.
- Pay on time. It sounds simple, but you are appreciated as a classy operation when you pay on time. Don’t make suppliers sweat over collecting what you owe.
- Give suppliers reasonable lead times on your orders and don’t take advantage of them just because you’re the client.
- Communicate and be inclusive. Let good suppliers know what’s going on with re-organizations in your company. Invite them in to give you industry updates. Occasionally include them in company events.
When you disrespect people, you eventually lose your reputation as an effective negotiator and buyer. You have no natural authority. Suppliers aren’t willing to go out of their way when you need them. It catches up with you.