ABCs Of Buyer/Seller Relationships (1474 words)
There are basically three levels of buyer/seller relationships. The first and most common relationship level is Adversarial. This is the traditional win-relinquish relationship where you, the buyer, squeeze your supplier for the very last bit of a discount. You are determined to get the last drop! You are not focused on the cost of doing business with one another, just what you believe to be the lowest cost. This is a transactional only relationship.
Next is the Barometric relationship. In a Barometric buyer/seller relationship you are always checking the atmospheric pressure. This relationship is still being monitored and measured closely. Generally you have not yet developed a high level of trust with one another. It could be a single source relationship, but with a short length contract. While this relationship can grow and flourish, it can also sour quickly. Few people thrive with others constantly peaking over their shoulder. In this type of relationship, each side must still engage in CYA (cover your assets).
The highest-level buyer/seller relationship is Complementary. This level is where true integral Partnering takes place. At this level the visions and values of each overlap with one another. There is a true alignment of values in place. Each understands the needs of their alliance partner and works hard to help their partner get what they need while likewise serving their own organization.
- Value-based purchasing,
- Sole-source relationships,
- Vendor Managed Inventorying (VMI),
- Just-in-time (JIT) shipments are made successful through trust and
- Electronic Data Interchange (EDI) at this relationship level.
- Complementary Contractor/Distributor Relationship
An example of Complementary buyer/seller Partnering is the relationship Universal Systems developed with Graybar through Graybar’s local branch. Universal is an electrical contracting company and Graybar is a distributor of electrical supplies.
In 1996, Gene Dennis, President at Universal Systems realized his company had a problem. His supply inventory was out of control. Through the assistance of Parviz (Perry) Daneshgari, Dennis set out to make a change. Daneshgari is president at MCA, (an implementation company in Michigan), an adjunct professor of automotive engineering science at the University of Michigan-Dearborn and Oakland University’s School of Management and the author of The Chase, (1998, Black Forest Press, San Diego, CA) a business novel about process implementation. Dennis decided he wanted to be a construction company without owning and handling any material. This was a lofty goal as traditionally the stocking of electrical supplies was a cornerstone of the business.
He needed a supply partner. His choices were a local supplier and Graybar, a national supplier with a branch in his community. He leaned toward the local supplier until he showed up at their place of business unannounced. “We were held hostage,” said Dennis (Electrical Contractor Magazine, July 1998). The problem was that the president was not in and the employees didn’t know what to do so they put Dennis and his team in a conference room. In contract, when he showed up at Graybar unannounced and the branch manager was out, all the employees knew about Universal looking for a supply partner. The staff at Graybar showed him and his team around at once. Upon closer inspection, Dennis learned that Graybar’s on-time deliveries had been 29 percent higher than their competitor. Graybar was selected for the sole-source arrangement.
Graybar agreed to take ownership of Universal’s existing in-site inventory. An on-site inventory was maintained and orders were placed via Graybar’s EDI system and invoices were generated from Graybar’s St Louis headquarters monthly. Universal realized approximately $60,000 the first year through eliminating delivery trucks, inventorying and other personnel savings. Graybar offered additional benefits as the relationship progressed. Before the partnership, Universal had to pay extra for shipping their frequent emergency orders. In the partnership Graybar maintains a standard list of commodity items at the local branch and if they don’t have it, Graybar pays the shipping.
What’s in it for Graybar? “Instead of wondering how to get the order, now we sit in on job meetings, try to find ways we can help, and look for cost and process savings,” says Jim Estis, a local Graybar account representative (Electrical Contractor Magazine, July 1998). Chatting with Dennis late October 1999, he said, “Partnership is covering the backside of each other—each looks out for one another.”
The following are Daneshgari’s steps to form a vendor partnership and criteria for selection, which Universal Systems used. Dennis and Daneshgari outlined these when they presented their success story at the 97th Annual National Electrical Contractors Convention in Las Vegas, Nevada, October 1998.
Steps to form a partnership:
- Develop a scope of work.
- Send out requests for proposal and interview potential vendors.
- Review proposals.
- Create a short list.
- Make unannounced tour of vendors’ facilities.
- Evaluate finalists.
- Negotiate an agreement with your selected vendor.
Criteria for Vendor Selection:
- Purchase existing stock at retail value.
- Establish a branch at Universal Systems.
- Have an inventory management system.
- Work toward continuous improvement process.
- Use EDI for billing.
- Have a delivery process.
- Use periodic evaluation process.
- Contract termination clause.
- Product warranty and liability.
- Maintain property damage insurance.
- Aggressive pricing strategy.
- Maintain stocking inventory.
- Maintain workers’ comprehensive insurance.
- Offer single point of contact.
(Used with permission of Parviz (Perry) Daneshgari)
Complementary Distributor/Manufacturer Relationship-Fuji Factor
Fuji Photo Film U.S.A, Industrial Imaging Group has the right idea. They are true partners with their distributors. Fuji Photo Film is a manufacturer that supplies the graphic arts industry, supplies for printers. Among the major suppliers to the industry, Fuji is by far the most advanced in building quality relationships with their dealers. Much of the success is attributed to Stan Freimuth, president at Fuji.
The Fuji factor is a model that more manufacturers should embrace and more purchasers should demand of their suppliers. If you were a distributor, wouldn’t you rather have a supplier relationship that could grow and improve over time? This is only possible with the right kind of supplier. The key elements to Fuji’s success are as follows:
- Limited number of dealers offering their products to their market. While approached by virtually every non-Fuji dealer (distributor) in 1997 due to industry manufacturer consolidation and pressured to add their preferred dealers by national accounts, Freimuth had to make some hard decisions about his dealer network. He responded, “The net result of all this has been minimal changes to our dealer network. As most of you know, we have pretty tough standards that must be met before we will sign on a dealer. We only want strong, well-run companies who are willing to do business the way that we want to do it, and be complementary to our existing dealers.” (Access Fujifilm Graphic Systems Division newsletter, Fall 1997)
- Manufacturing products of the highest quality with zero defects as the norm.
- Builds tight relationships with their limited dealer network. In his letter to distributors, Freimuth states, “Last month the Graphic Systems Division hosted the Partnership 98 Conference in Greenville/Greenwood, SC. As many of you already know, this is a meeting where key dealer personnel (whether they be field sales reps, branch managers, electronic imaging reps, etc.) meet and interact with members of the GSD [Graphic Systems Division] management staff. It’s a chance for all of us to listen to each others concerns, get to know each other better and tour our state-of-the-art manufacturing facility in Greenwood.
We have been doing Partnership meetings in one form or another since 1992 and I am still impressed each time by the interaction between our two groups. At that first meeting in 1992 I remember the overriding sense among the attendees that we were all helping to shape something that was completely different in our industry. The concept of a manufacturer/dealer meeting with a free and open exchange of ideas (let alone mutual respect for each other) was unheard of at the time.” (Access Fujifilm Graphic Systems Division newsletter, Spring 1998)
- Seeks constructive feedback from their dealers and acts on the ideas shared.
- Consistency of leadership; Freimuth has been the president since 1983 when Fuji opened shop in the United States. Other companies in their industry have had numerous changes in leadership during that same time period.
- Accessibility; several dealers attested to the fact that they could pick up the telephone and easily reach Freimuth.
- Trust; when I asked about building quality relationships with his dealers (Spring 1999), Freimuth said, “It doesn’t come easy, it’s hard work.”
Regardless of the scope of your relationships, work with your suppliers to build Outrageously Successful Relationships. The Complementary relationship level may take longer to develop than you may hope, but the close relationship delivers value. This foundation will allow you to PartnerShift throughout your organization and benefit from your effort.