Vendor Relationships: Regular Reviews Yield Maximum Benefits
Building strong vendor relationships is a key to success for most mid-sized businesses. A wide range of different vendors usually provides services and supplies merchandise and materials to most businesses — everything from the raw materials needed to manufacture goods to accounting and payroll processing services.
Therefore, it’s critical to stay focused on establishing and maintaining healthy, win/win relationships with your vendors. This includes reviewing existing vendor relationships on a periodic basis to make sure that both your business and your vendors are still benefitting from the arrangement.
Challenges With Legacy-Owned Businesses
There can be unique vendor management challenges when vendor relationships were originally established outside of current ownership or management, as is often the case in legacy-owned businesses. Often, these relationships were based heavily on the personal relationships between the business owners.
If one of the owners (of either your business or the vendor company) is no longer in the picture, then it could be time for a re-evaluation of the relationship. What may have been suitable in a personal business relationship can be detrimental in a corporate environment.
For example, personal relationships can potentially serve to cloud judgments regarding corporate support. Your business and the business climate you operate in are always changing, so what may have been appropriate in the past may no longer be relevant going forward.
Your company could experience several negative impacts by failing to re-evaluate vendor relationships on a periodic basis, including the following:
Costs could rise as vendors raise prices beyond what you could obtain out in the marketplace.
Product and/or service quality could suffer due to inertia that often sets in when you’ve done business with a vendor for a long time.
Changes occurring in the vendor’s business and/or your industry and marketplace could result in the vendor no longer being the most suitable one to meet your needs.
Conflicts of interest could arise if the vendor serves both your company and legacy owners personally. Tax consultants and insurance agents are two common examples here.
How a Part-Time CFO or Project CFO Can Help
An on-demand CFO from a CFO services firm can work with you to conduct periodic reviews and evaluations of your company’s existing vendor relationships. This high-level financial professional will come into your organization without the bias that can potentially impact a legacy-based management team. Extensive dealings with all types of vendor management gives a CFO partner a good understanding of the types of vendors that will be a good fit for your company.
A part-time CFO or project CFO will also be able to perform a cost-benefit analysis to insure your company is getting the maximum benefit from its vendor relationships. With a solid understanding of where your company is heading in the future, the CFO can help secure not only the right vendors for today, but also vendors who will be able to continue meeting your company’s needs as you grow.
Your business could realize many benefits by bringing in a CFO partner to help you review your existing vendor relationships, including the following:
You’ll receive more attentive support and service from your vendors as they realize that their performance will be reviewed on an ongoing basis.
You’ll benefit from a continuous improvement cycle as you go through your evolutionary process.
Your vendor relationships will be strengthened due to the ongoing interaction between your vendors and your management team.
The bottom line? Your company will enjoy lower costs, improved service and a higher return on investment in the dollars you spend on vendor services.
Building strong vendor relationships is a key to success for most mid-sized businesses. Therefore, it’s critical to stay focused on maintaining healthy relationships with all of your vendors, but especially those where the relationship was originally established outside of current ownership. If one of the owners is no longer in the picture, then it could be time for a re-evaluation of the relationship. An on-demand CFO can help you conduct periodic reviews of your existing vendor relationships and realize accompanying benefits.
Mark S. Becker, Partner, CFO Edge, LLC