There are a number of other critical skills and capabilities that we need to add. It starts with understanding how a commercial agreement is developed and documented. Ideally, the relationship does not rely on the contract to resolve day-to-day issues. In the best relationships, the contract and commercial agreement rarely come into play. However, both parties need a clear and fair agreement that outlines the work to be done, the financial considerations, and how issues will be resolved should any arise in the course of the relationship. Those truly gifted at managing these relationships keep the contract terms in their back pocket to use only when necessary.
Cross functional interaction Prevents Sunk Costs
As always within supply chain operations, you’re either going to pay now or pay later. Sunk costs are sunk costs. Can you manage different relationships that require different levels of nuanced vetting? Can you give your CFO assurances that you’re being as cost effective as possible while not sacrificing service and quality? Is your knowledge base broad enough to be conversationally aware and able to identify red flags/lights on the supplier side and also be savvy enough to get the necessary money out of the CFO to preserve relationships with vendors who provide necessary levels of quality and service to ensure growth?
Long Term vs. Short Term
The folks that accelerate their careers the fastest demonstrate an ability to balance competing interests from a position of leadership.
Data suggests an average supplier relationship lasts 7 years. Being able to ensure a mutually beneficial relationship for both parties for that long takes a certain savvy. Think about it. You know the nuance of your supplier. You know what they can and can’t do. You accept their limitations and they accept yours. You’ve managed expectations up to your CFO and other stakeholders.
Internal pressure to cut costs might help in the short term. But it could hinder growth and development in the long term. Your supplier segmentation strategy is highly dependent on creating these lasting external relationships working in tandem with your internal obligations. For example, your supplier can’t continuously improve quality and service if they are being squeezed on rates by your Procurement team and choose to process improvement resource as a cost cutting maneuver. Costs might go down but risk goes up.
Your pitch needs to adjust. Balance the needs of the CFO with your need for supplier reliability and resilience and quality capability. This requires high level communication skills and an ability to not react, but to respond.
Analysis of strategic value vs. bottlenecks is huge. Your packaging is not necessarily strategic but it carries a high risk and can slow things down. So don’t treat bottleneck suppliers as low cost because it will create a hidden risk that is real given recent experience. Understanding this and where your non-critical assets vs. your leverage are is essential. Your own experience and knowledge will help you form a better understanding of your vendors and how best to manage them. Don’t discount what you already know. Add to it. Balance that with a nuanced understanding of your vendor’s limitations – as well as their top line capabilities. Do this over time and you will be an asset unto yourself – able to write your own ticket almost anywhere.
Conclusion: Unique Skill Sets Required
Managing internal relationships and communications matrices are one thing. It requires a level of politicking and maneuvering in order to maintain productivity and profitability. However, the rules and infrastructure are set. Experienced players know the game and the hierarchy of decision making.
Vendor management/third party relationships requires different skill sets and savvy. One has to learn how to read people and situations. Financial arrangements and motivations color most communications and interactions. Trust is only built over time and mutually beneficial deals. The hard part is bridging the gap between internal and external.
Are you able to judge when to trust someone and when not to?
Can you get to the bargaining table to say “help me help you?”
Do you understand when to change up your pitches, situationally?
The best supply chain leaders understand the interdependence of different functions. This skill set is especially applicable when managing external relationships and balancing them with internal priorities.
There’s a reason big brands like McDonalds maintain 50 year relationships with some of their vendors: because they had the right people in place to work both internal priorities into external negotiations in a way that kept everyone happy.