As soon as I walked into the meeting, the procurement manager put forward her demand, “I am looking for at least 10% reduction on cost of new proposal before it is approved”. I politely asked her for the reasons and whether she felt that our efforts were high. However, she didn’t have any justification for her demand.
This wasn’t a “true” fixed price engagement as the fixed price was arrived at using time and material (T&M) approach. The project estimates were approved by line & project managers and subsequently, multiplied with pre-approved rates from Master Service Agreement (MSA) to arrive at fixed price for the project. In addition, we already had annual rate review, volume discounts, zero resource on-boarding cost and other strategic investments in place that provided opportunities for negotiations and discounts.
I wasn’t supportive of negotiating every small & large proposal, as, over a period, those negotiations would have caused trust and relationship issues especially with line and product managers who we were dealing with on a daily basis. After a fairly long discussion with procurement manager, I finally asked the line manager whether he had any budget constraint that I could possibly respect otherwise, there was no reason for me to bring down the price.
It was heartening to see the line manager thinking sensibly and echoing my sentiments. Even he wasn’t keen on sitting across the table to negotiate 3-4 proposals every month and putting relationship, delivery and even team morale at risk. He asked procurement manager to not drag her demand any further and helped close an otherwise unnecessary discussion.
In another instance with a different client, we were asked to do business at a cost-plus-margin model. The cost included employee compensation, insurance, visa, etc. but didn’t cover any SG&A and others costs that applied to our business.
The cost-plus-margin model works well for small service providers (and recruitment agencies) that have less overheads and offer nearly no value-add beyond pure staffing. Whereas the medium & large service providers make significant investment into sales & marketing, account/program management, relationship building, project management, reporting, office infrastructure, proactive hiring & training, employee retention, understanding client’s business, demonstrating innovation, providing thought leadership & value addition, process improvements and so on.
I explained our business model to the client and conveyed our inability to do business on their terms. The client took my response personally and retorted by poaching our staff and spreading negativity about our organization. It took a huge effort, strong communication and of course, some support from a few good Samaritans within client’s organization to secure our business and employees from otherwise an unreasonable client.
There were a few other instances where I felt the clients were too focused on their own gains and paid neither attention nor respect to supplier’s business, relationship, commitment & team. Once, a client wanted us to provide certain services to one of their clients. While this was perfectly acceptable model, they didn’t want to sign a contract with us until they had a back-to-back contract signed with their client. In other words, they didn’t have any skin in the game but still wanted us to deliver services immediately to earn brownies with their clients and management. Another time, a client differentiated between internal (FTE) and external (supplier) staff by restricting access to the only cafeteria forcing the supplier staff to take lunch either at their desk or outside office. The client did not think that the supplier staff was an extension of their own team and was enabling them to achieve their business goals. Fortunately, they realized their mistake soon and reverted the decision.
Having led some strategic engagements across continents, I believe that the clients need to rethink their supplier strategy and engagement to be able to build long term mutually beneficial partnerships with their suppliers. I am attempting to list a few questions (and some explanation) that the clients must ask themselves -
- Do you “Know Your Supplier”? - I feel that this compliments the more familiar “Know Your Client” (KYC) business mindset. For a client, it is extremely important to know the supplier’s business model, products & service offerings, various business units, strengths, weaknesses, leadership team, culture, etc. to better leverage the supplier and get the most from the relationship in a positive manner.
- Are you engaging your supplier to help refine your business goals and strategies? - There is a great chance that the supplier has experience working with some leading organizations in your space including your customers, competitors, partners, other suppliers, etc. and can offer valuable advice on your business.
- Have you considered co-innovation by combining your business experience & vision with supplier’s technology strengths, experiences and ability to quickly mobilize the resources on some latest technologies? - I have experienced clients being closed to ideas/suggestions from the suppliers, doing most of the thinking themselves and engaging suppliers only for execution. Again, you are missing on some key inputs, strategies and experience of supplier.
- Have you invested in your supplier? - Just like the suppliers invest into their clients, the clients must invest into their suppliers in terms of strengthening relationship, encouraging collaboration & co-innovation, enabling supplier to execute successfully, supporting training & retention (of supplier staff) initiatives, providing references, and so on. A small gesture from you will make your supplier go all the way to ensure your business is successful.
- Have you taken efforts to visit/meet your offshore/offsite supplier teams to bridge any gaps with communication, knowledge, delivery, etc.? - While there are tangible benefits, you certainly cannot ignore the immense intangible benefits such as higher team morale, greater collaboration & transparency coming out of these visits & meetings.
- Have you been considering supplier staff as an extension of your own team and doing your bit by appreciating the efforts, sharing credits and facilitating rewards and recognition for supplier staff? - Again, it’s time you see the supplier staff as an extension to your team which by itself will infuse a feeling of partnership and motivate the supplier staff. Also, do not shy away from appreciating their commitment and contribution to your business. A short thank you email or a brief mention in a meeting with supplier management will go a long way in ensuring that the high performers are rewarded in their own organization.
- Have you sought supplier feedback ever? – pretty much every supplier seeks client feedback to continuously improve its services, products, engagement, delivery, quality, pricing, processes, and so on to achieve customer delight. How often do you see clients seeking supplier feedback? If you have built a trusted partnership, the supplier will be delighted to not only share valuable feedback but also work with you to improve your supplier management model, contract & procurement processes, invoicing & payment processes, sales and account management processes, project management & execution, quality of products and services, and so on.
