Tips to have a close relationship with a key Customer or Supplier
Tips to have a close relationship with a key Customer or Supplier – A critical success factor for most companies is to have the ability to develop a close relationship with a key customer or a key supplier. They try to build this close relationship using two essential ingredients which are “contracts” and “personal interactions”.
Contracts, as we all know, are written detailed formal documents that specify the legally binding obligations and roles of both parties in a relationship by codifying the tasks, outcomes, standards and behaviours. Both Customers & Suppliers will sign if they feel that there is enhance the opportunities afforded to them from this relationship. I always advise companies that are spending over $50,000 with a supplier to have a contract in place.
Personal Interactions, also known as “relationships”, with a customer or supplier continually needs to developed, managed and re-assessed. There is always merit in working hard and putting ones “Best Foot Forward” to build and maintain a trusting relationship. However, it is essential to point out that trust “not only binds, but it also blinds“. Long-standing relationships can cause companies to neglect to keep updated what is happening in the market in terms of price, service levels, transaction terms and product offerings.
All companies must use a formal model to appraise, monitor and control the relationships with their key customers or suppliers.
I would like to introduce you to what I term as a “Key Customer/ Supplier Relationship model”. This model can be used to assess how close a relationship you currently have a key customer or supplier. It can also be used by you to evaluate areas where you need to develop with the other party to create a close relationship.
The model is broken down into two key areas – Attitudes and Actions.
– These elements identify how you and the critical customer or supplier approach the business relationship.
Attitudes are made up of five key elements:
1. Joint Learning
The relationship must be approached with a sense of mutual learning. Every customer or supplier must be continually contributing something in addition to and beyond what you can provide.
2. Long- Term Expectations
Relationships should be focused on a long term view. There is the view that each side is motivated to do the best for the other. Maintaining the relationship is more important than ending the relationship. While the concept is focused on the long term, it does not mean permanent.
Trust is the willingness of one party to believe that the actions of the other party will be of benefit rather than a detriment to the first party. Trust is built through three stages:
Calculative Trust – This is the most basic level of trust, and it occurs when one of the parties determine that trusting the other party is likely to lead to a better outcome for them.
Cognitive Trust – This is where each party shares and understands the other party. Mostly they can predict how the other side will react to an action taking by them.
Bonding Trust – This is based on the partners holding common values, moral codes and a sense of what obligations are due to each other.
4. Shared Success
Shared success means that both parties recognise that they have more to gain through the success of the other partner than they have individually or by exploiting the other partner.
5. Multiple points of contact
Various points of contact mean that communication between partners involves many links between different individuals in both organisations. This approach encourages multiple people to people relationships.
– These elements identify the activities undertaken during the relationship.
Actions are made up of five key elements:
1. Joint Coordination of activities
The timing, type and quantities of product or service deliveries are usually subject to a higher degree of mutual agreement in a partnership.
2. Joint Problem Solving
When problems arise, they need to be addressed by both partners. How such issues are addressed can be widely seen as being central to how the partnership works.
3. Dedicated Assets
One of the precise ways to demonstrate a commitment to a partnership is when one partner will commit dedicated resources to the other partner. It can be a way to confirm that the partner is focused on a long term relationship.
4. Information Transparency
Each partner is open, honest and timely in the way that they communicate to the other partner. It is a crucial element in any relationship. Exchange of information is vital to the partnership, and the ability to exchange sensitive information can be seen as demonstrating confidence in the relationship.
5. Few Relationships
Partnerships inevitability involves a limit as it can maintain intimacy. However, it does not mean exclusivity, but it can be considered an agreement to the extent which a partner may form other relationships.
Approach to determine the closeness of the relationship with a Key Customer or Supplier
**Note, this review must be conducted at regular intervals**
1. You need to develop a simple scorecard for each of the ten elements. It can be the criteria you used in your initial review. This scorecard can be used in future assessments of that element, and it should be continuously improved.
2. Review each of the elements in the model:
– If you feel that there is a divergence highlight that element In Red
– If you feel that there is a convergence highlight that element in Green
3. After the review, you will quickly be able to determine how Red (negative) is the relationship and how Green (positive) is in the relationship.
4. If the majority of the elements are Red, then there are serious concerns which must be immediately addressed between your company and the key customer or supplier.
5. If the majority is Green, then you should focus and work on the Red areas with the customer or supplier to try turning them into Green at the next review.
Example 1 – A Suppliers review of a relationship with a Customer
– After this review, it can be seen that 8 out of 10 elements are Red (Negative).
– It indicates that the customer does not consider that there is any special relationship with you as a supplier.
– A decision may be required to decide to invest resources to build a close relationship with this customer.
– If the decision is not to build a close relationship, then a sales approach can be to focus on the unique selling points of the product or service and use this to sell the product to the customer.
– If the decision is to build a close relationship with the customer, then any strategy should set out a plan and allocate resources to turn each of the individual red elements into Green.
Example 2 – A Customers review of a relationship with a Supplier
– After this review, it can be seen that 7 out of 10 elements are Green, therefore it is currently a positive and close relationship with the supplier.
– Attention should focus on addressing each of the negative items in the red elements with the objective being to turn them Green.
– Caution should remain, and there may be the need to have continuous reviews of this relationship to determine if there are any increases in the number of Red elements. It will help to ascertain the close relationship is coming to an end.
Conclusion – Tips to have a close relationship with a Key Customer or Supplier
Depending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one. It makes sense: you don’t have to spend time and resources going out and finding a new client — you just have to keep the one you have happy. However, it is essential to continually review your customers to ensure that you are keeping the right customer.
The Key Customer/ Supplier Relationship model not only will assist you to keep customers but also help you to assess if it is the right type of customer.
The same logic applies to your key suppliers, due to the high transaction cost of changing from one key supplier to another, you may need to frequently review and work on the relationship with these critical suppliers.
Again this model will assist you in this area.
About the Author – Tips to have a close relationship with a Key Customer or Supplier
Aidan Conaty is the founder of Goodada & TCI China. Aidan is a qualified Management Accountant, was awarded a scholarship to study his MBA at Trinity College Dublin. He has a consultancy background in Management, International Business and Supply Chain.
Aidan can be contacted email at email@example.com or at:
- (Europe/ Rest of the World) +353 1 885 3919
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Child, J and Faulkner, D. (1998) Strategies of co-operation: Managing alliances, networks and joint ventures. Oxford: Oxford University Press
Slack, N and Lewis, M (2017) Operations Strategy 5th Edition. Pearson Mission