This is the third part of a trilogy of posts on the life cycle of a buyer/seller relationship. It’ll make more sense if you’ve read part 1 and part 2 first.
Since the contract was awarded, time has passed and the buyer–supplier relationship has cooled off. The account is now in its final throes and has inevitably got to a point that happens time and again: renew or exit.
Either option at this stage seems suboptimal. To renew would mean the buyer’s acceptance that the supplier has exerted pressure on internal stakeholders not to change, effectively moving them into the ‘strategic’ quadrant of Kraljic (portfolio) matrix.1
Renewing would be acceptable if ‘competitive advantage’ were being achieved but, on review of the account, the buyer – who has been exceptionally busy this last few years – can see that the supplier is really offering nothing exceptional.
On the other hand, initial forays and discussions with other providers at exhibitions and trade fairs would seem to indicate that the competition can do more: new entrants have come into the market and are much keener – additional features and service propositions are being offered.
The decision is going to be a battle of wills: Procurement versus Stakeholder Community – oh, why does it always come down to this?
On recent review, the supplier showed that they had:
- general apathy to suggestions,
- lack of enthusiasm to create new ideas or challenge processes and ways of working
- very polite rejections to meetings, with other dates proposed some way into the future
- shorter and more precise phone calls, the probe and challenge gone
- simple perfunctory execution of tasks
- more distant words and tone, with less friendliness
- collective nodding and agreement to performance statistics, the measurements suggesting that the relationship has indeed worked well, but portraying only a scorecard and not the underlying health of the relationship.
It would seem that the ‘exit’ strategy is the only solution.
But, before dropping the axe and having another ‘key’ supplier exiting, let’s rewind this relationship model to the beginning and find out what went wrong.
Healing the wounds
There are many reasons for the breakdown of a relationship, but there are also many ways to establish what exactly caused the breakdown.
Ishikawa2 developed a tool for cause and effect analysis which allows us to brain storm an event such as the breakdown of a relationship and helps to pin point where it went wrong.
Our ‘Effect’ is the subpar performance and the deteriorating relationship with a key supplier and our ‘Cause’ could in this particular scenario be classified or grouped as follows.
Interests: The interests of each party was not mutually identified and discussed at the outset; the supplier was trying to anticipate what the buyer wanted because the buyer never communicated their precise needs.
Evolution: Mid-longer term accounts will evolve and change. Mechanisms put in place were for a snapshot in time at the start of the contract and not designed to evolve or react to change.
Apathy: Suggestions to improve the cost model and performance were made by the supplier but largely ignored by the buyer, so the desire to innovate was lost as fatigue set in – perhaps other accounts had been won where the buyer was more engaged and receptive of ideas presented to them.
Belligerence: The seller quite rightly feels badly treated by the buyer, who has failed on promises, behaved in a ‘tactical’ manner and simply not trusted the seller at any point. Requests for additional work have gone out to market, rather than sitting down and applying principled approaches to the cost model. Anchor pricing was applied at the outset to win the work and the market attractiveness of the account (Seller’s Perception Matrix) has not been realised.
Management: Any relationship requires time and effort on both sides for it to be effective, including reaching compromises, being open to a full debate and not talking the other side down. This hasn’t happened: the mutuality never came into fruition and the buyer never devoted the time to work the account – they were always onto the next big thing.
Commercial Principles: It appears that fixed costing models have been in place, lacking the flexibility to evolve as the account matures or, indeed, to encourage that journey into the cost-down and VA/VE route. The incentivisation has been lacking.
Divisive behaviours: The seller has clearly worked their charm on the stakeholder community making it more difficult for the buyer to move to another supplier. For many a seasoned buyer though, this just presents another ‘welcome’ challenge, as they now need to influence stakeholders to make the change. After all, for some buyers, the shock and denial stages of the classical change curve are the most challenging – they enjoy the resistance and the need to be objective and persuasive to encourage a different view to be taken.
Having analysed the underlying causes, what should the buyer now do? The revitalisation of the relationship depends on whether the supplier can determine whether, next time around, the buyer will follow through on promises, put the right amount of effort and expertise in front-end and ensure that all of the other attributes/dynamics of the ‘relationship’ are planned over a period of time.
This front-end modelling can and should have been done at the outset, testing all the dynamics of the relationship – not just performance – that need to endure over time. There are many multi-dimensional aspects which, through structured questioning and modelling can and will help both parties understand the journey they are embarking on. An extract of the possible top-level areas are represented in the below model:
In conclusion, if the relationship can be re-energised and principles agreed, with clear mutually agreed and measurable success markers (not just KPIs), then there is no reason why the agreement shouldn’t be renewed – assuming that both the Kraljic and Supplier Perception Matrix positions are also synchronised.
If not, then a managed exit needs to be planned and a coherent justification formed, as more often than not both the supplier and buyer will come together again at some point in the future, especially where genuine competitive advantage is held. Unfortunately in this case competitive advantage was not realised due to misalignment – but maybe this will be a less a full divorce and more a temporary separation.
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