Ending Supplier Relationships without Hostility
Susan Scott, C.P.M., CIRM
Susan Scott, C.P.M., CIRM, Senior Consultant, HARRIS CONSULTING, INC. Lexington, MA 02420, Susiscott@aol.com
86th Annual International Conference Proceedings - 2001
- Much has been written about how to develop supplier relationships, how to create supplier partnerships, and how to select potential partners, but, although over 50% of supplier partnerships fail, little has been said about how to effectively end supplier relationships.
Too often we end failed partnerships with acrimony, bitterness, and hostility on both sides, rather than with professionalism, recognizing that it's a small world in which we work. We might someday need one of these vendors again...or we might someday find one of their executives working at another supplier on whom we are dependent.
Before we talk about how to end the relationship, let's talk first about what circumstances might lead us to terminate a partnership, or cut off a supplier.
Usually these circumstances fall into two types ( from buyer's perspective):
voluntary or involuntary
Among the voluntary reasons, one of he most frequent is unsatisfactory performance, i.e. unacceptable quality, delivery or service
Usually we don't abandon a supplier in whom we've invested years of business, but if we continue to send in quality teams, work on solving repetitive problems, and we keep seeing recurring fallback and a lack of responsive change, then we will eventually give up and look for a supplier who will prove more responsive or more capable.
Likewise, if we make substantial efforts to work with our supplier on cost reduction, and yet meet considerable resistance to value engineering, kaizen, and other proactive cost reduction activities, we will often seek out a more cost-effective supplier to meet our competitive market needs.
If we regularly shop on price, we would frequently be changing for this reason.
Involuntary change would result from a supplier's bankruptcy or the unexpected risk of it.
Termination could also be our reaction to the acquisition of our supplier by another entity, maybe resulting in the closing of the plant we used.
Whether acquired or just re-engineered by the Board of Directors, a management change that introduces incompatible philosophies can disrupt our relationship and lead to a divergence in vision and goals. A new CEO will want to make his/her own mark and may decide that the partnership with our firm is no longer desirable.
Likewise the new CEO may want to enter new markets or to introduce new core competencies, to the detriment of the old. We must be prepared to change suppliers in this instance, since a partnership not backed by committed management will seldom work.
Finally, some corporations, like P&G are examining their customer base and dropping those customers who are not profitable for them. Using the 80/20 rule, corporate sales executives are trying to align the use of resources with key accounts.
In addition to all these other reasons, the most prevalent reason for dissolving a supplier partnership is BROKEN TRUST. Once you can no longer rely on a partner to back up their word with action, to tell you the truth about downtime or quality issues, or to share true and accurate cost information, the relationship deteriorates quickly. This is just as true for supplier relationships as for your marriage or other personal relationships, because it is a person-to-person commitment that makes the deal work.
It is not always the supplier who breaks the trust either. Nor is it always intentional. Old habits die hard.
Failure to fight for your supplier in internal battles, to push the organization to follow through on its commitments can result in low trust.
Finger pointing vs. factual problem resolution erodes trust.
Failure to communicate issues that affect the supplier directly can damage trust.
"Walk the Talk" is easy to say but often hard to do.
We need to ensure that neither we not the supplier have unrealistic expectations of the relationship. It is useful to spell out exactly what are expectations are, in the contract: what level of savings, support, or quality. Many firms are now creating Service Level Agreements for just this purpose. It forces companies to think about success criteria in measurable format.
In performance review meetings, spell out service expectations, attitudinal expectations, response time goals etc. Be sure we all agree on the definition of a reasonable expectation.
Allow for human error by setting up a process for problem resolution: e.g. a data-based system: data are presented before judgments are made. Objective evaluation of the facts is used to determine root cause and corrective action.
By meeting frequently to review performance, you can coordinate your measurement methods and mechanisms such that there is no disagreement on the accuracy and no charges of inappropriate subjectivity. Reward gains and successes both verbally and visually:
For one week track how many times you call a supplier with negative comments or remarks vs.. positive comments or remarks, and see if you are treating them in a manner that makes them feel good about the relationship or not. This is common sense, but not common practice.
Sometimes, even with the best efforts of all concerned, a supplier is unable to meet our needs well enough to retain the business. For the sake of our corporation, we must change suppliers, transitioning as gracefully as we can from the old to the new. Communication with the user in advance smoothes the transition. Our goal is that the user will notice improved service and quality, but suffer no downside from the change. In some cases, the user is part of our transition team, even of the selection team for the choice of new supplier.
We will notify internal team members of our intention to change prior to notifying the supplier. However, we do not want the supplier to hear of the impending change informally, prior to our official notice.
If we are doing regular performance reviews, it should be no surprise to the supplier that the relationship is coming to an end. Nor should we have to surreptitiously move our business out under the cloak of reduced volume and other excuses for steadily decreasing business.
I'm not saying you won't want to temporarily increase inventory prior to the change or try to run the new and old supplier simultaneously while you allow for learning curves, but I do not favor the "back door approach" as an exit or entrance strategy. It puts you in a bad light. Will not your new supplier think that if things get bumpy with him, you'll treat him the same way? sneaking out? Moreover, the sneaky approach could hurt your reputation in the marketplace at large, in small industry segments. It's basically dishonest.
Nor do we want to put the supplier on the defensive by denigrating their company or people.
Try saying, "Just because we've been unable to solve our problems to our mutual satisfaction does not mean "you're no good", rather it indicates we misjudged our needs, your core competencies or our ability to match our requirements to your process capabilities."
The most difficult part is to avoid letting emotion rule in the break-up.
One party or another tends to become defensive or to feel short-changed, and then the "you owe me" argument pops up. e.g. "I suffered with poor quality for 5 years, giving you resources and listening to your complaints, so you owe me recompense for the improvements we made in your tool at no charge." Defuse emotions with empathy where possible, but work with the facts. Appoint a neutral party to oversee the transition, if you find it difficult to be objective.
Change is a regular event in business today. Recognize it, and plan for it in the beginning.