How to Deal With "At Risk" Vendors

Imagine that you are reading the Sunday paper. You suddenly see your vendor’s company name in an article about their stock value plunging on news that they were experiencing "constraints" delivering their services. On August 10th, that very thing happened to the customers of Swift International (Swift). "Where Have All the Trucker’s Gone?" [Sunday Aug. 10, 2014, New York Times] Apparently, Swift (and presumably other logistics providers as well) cannot find enough qualified drivers to work for wages that have decreased by up to 6% on an inflation-adjusted basis in the last decade. Those customers that had not already heard the news read about it in the paper. If you are a sourcing, contract or procurement professional, this type of news should cause you to pause and reconsider your vendor pool. [inlinead] Traditionally, buying companies would seek to limit their risk exposure by diversifying their vendor pool. But if a lack of drivers, or any other kind of qualified personnel in your industry, means that a diverse pool of vendors will face the same challenge, it is time to do something different. The answer lies in the method the buying and selling company uses to negotiate value. Most companies think that using a collaborative negotiation approach should be reserved for the service providers who are already performing well. That’s a huge mistake. Negotiating Value The problem lies in the bargaining process, not in the attempt to control costs. Both the buying company and the service provider speak only of claiming their value (each attempting to capture as much margin as possible), rather than about ways in which to create and then allocate newly created value. The book, Getting to We, outlines three ways business people negotiate value. Negotiators can: claim value (literally take the largest share of a limited resource) create and then claim value (expand the pie and then take the largest share of that pie – a limited resource) or they can create and allocate value for mutual gain. This third method for negotiating value is literally a framework. Unlike conversations centered around claiming value, which are one-off events, the two companies are in effect structuring an approach to work together to solve problems associated with rising costs, disruptive innovations and pressures to reduce costs. Allocating value may seem too good to be true: it is not. Allocating value is real and companies have done it. The article "Unlock Value By Decreasing Vendor Risk" describes how two companies successfully allocated value by decreasing risk. Establishing a financial framework instead of a one-time negotiation to fix the fee does require a significant shift in both companies’ mindsets, however. You may have at least one "at risk" vendor in your pool and that vendor is likely facing pressures that are industry wide. Rather than take a more traditional value-claiming approach to negotiating (or enforcing) the agreement, try establishing a value allocation framework instead.

How to Deal With "At Risk" Vendors

Upcoming Events

Closing the AP Automation Gap With Agentic AI: Real-World Case-Studies

Top 5 Shared Services Challenges that Leaders are Dealing With Now

Onboarding AI Employees: How Enterprises Are Building Their Next-Gen Digital Workforce

Craft a Right-fit Target Operating Model for Finance with aTOM

Why GPO Authority and AP Evolution Depend on Visibility

WorkX

Follow Us

Latest Webinars

The Real Journal Automation Gap: Why Posting Is Solved but Creation Is Not

From Excel to Control: How Finance Teams Build a Structured, Audit-Ready Close with AI-Ready Foundations

Unlock Hidden Cash: Turn Spend Data into Working Capital Wins

Recommended

SSON Podcast with the Producer of Rainman, Batman and Easy Rider

Podcast with Credit Suisse's Gary Carter: Rethinking offshoring's value proposit...

Winter is Coming…

Why is the Nordics region so "special"?

Nearshore plays well to Trinidad & Tobago's strengths

Successful SSO 'Micro-Learnings' from Monsanto and PepsiCo

Change leaves National Grid at a Pivot Point with regards to emerging services

Navigating the transition from low-cost labour to analytics and robotics service...

CEE Market Report: The Perfect Storm of Automation + Millennials = A New Deliver...

SSON Report: Understanding and Implementing Shared Services in Africa

Malaysia: Robotics and the New World View of Shared Services

Malaysia's Talent Challenge – Why it's Becoming Less Worrisome

FIND CONTENT BY TYPE

SSON COMMUNITY

ADVERTISE WITH US

JOIN THE SSON COMMUNITY

How to Deal With "At Risk" Vendors

Upcoming Events

Follow Us

Subscribe to our Free Newsletter

Latest Webinars

Recommended

FIND CONTENT BY TYPE

SSON COMMUNITY

ADVERTISE WITH US

JOIN THE SSON COMMUNITY