My first boss in procurement used to tell me, “You can go to lunch with a supplier. But you have to be able to come back from lunch and fire that supplier the same afternoon.” His philosophy on supplier relationships was to keep suppliers a bit at arm’s length, make them show value, and not to get too close to any one supplier or person. While there is debate in procurement circles about what makes a supplier relationship too close, I’ve definitely witnessed practitioners who are too close to certain suppliers. Today let’s talk about when the supplier relationship is too tight, some methods of spotting those relationships, and what to do about it.
When the Relationship is Too Tight
I’ve had colleagues who simply don’t go to lunch or dinner with suppliers at all, preferring to treat all suppliers equally regardless of their resources. I can respect that. Supplier visits can even become a supplier diversity issue, as small suppliers likely don’t have the resources (time, travel budget) to do many customer visits. That being said, at least some personal connection with supplier representatives is very necessary in procurement. Relationships are everything in our business, and without building relationships you end up with vendors instead of suppliers. (On the flip side, without relationships with internal stakeholders, you end up with a universally hated procurement department. More on attending internal customer staff meetings in this article.)
Going back to my first supervisor’s philosophy, a supplier relationship is too tight when you can’t fire that supplier and remove them from your spend list. A caveat here is that it may take significant time to switch suppliers, but it should still be possible. There are a number of ways a no-fire supplier can happen, from that supplier having a tight relationship with the CEO to that supplier providing something no other supplier has. Not all of these causes are under procurement’s control, but it’s up to us to fix them when we can. Ask “why” five times when you have suppliers you cannot fire, and take a critical eye when those why’s point to either the procurement team or supply chain’s executive leader. It’s a very short path from business lunch to corporate corruption, and it’s our job to guard against the latter.
It takes a lot to self-examine when we’re too close to a supplier, and it’s our duty to do so. Integrity in procurement is building valuable relationships, keeping them professional, and doing what we say we’re going to do. The danger of holding a too-close supplier relationship is when we start to prioritize that supplier over our own company, allowing that supplier price increases or other concessions we would never award their competitors.
Methods of Spotting Too-tight relationships
I’ve seen many procurement professionals get too tight with their key supplier representatives over time. Especially if they’ve been working in certain categories for a long time, they become friends with sales reps. This is not to say that we shouldn’t seek professional friendships; those friendships add joy to life. However, if a category manager is spending weekends in the lakehouse owned by a supplier’s sales rep, there’s probably an issue.
My favorite method of determining a too-close supplier relationship is simply mapping the spend by supplier. What you’re looking for is concentration of spend at the top, or the opposite of tail spend. Typically, 80% of spend should be concentrated in about 15-20% of suppliers. (i.e. for $10,000,000 in spend and 200 suppliers, $8,000,000 of that spend is with 40 suppliers). When that concentration starts to get to 10% or less, the company is carrying far too much risk with those top suppliers. Again, this doesn’t always indicate a relationship is too close. But it is procurement’s job to de-risk the business and see if we can get some competition into that top-supplier mix. Failure to do so means a supplier’s bad day can mean disaster for the buyer. Often too much spend at the top doesn’t indicate a procurement preference, but a technical team or leadership relationship that is too tight. When the supplier also has nepotistic ties, this gets to be downright dangerous.
Another method to watch for overly tight supplier relationships is simply to ask for feedback. As a supervisor, I’ve had technical teams come to me and say, “We don’t know if our category manager is on our side or the supplier’s. It seems like they’re taking the supplier side in our current contract negotiation.” When I looked into it, we did indeed have an issue where my category manager was too tight with the supplier reps; spending too much time at hotel bars during business trips late into the night with those same reps. If you’re concerned someone on your team is too close to a supplier, consider asking your stakeholders or even your legal team what they’ve observed. It’s not easy to do, but we have to hold ourselves accountable and remember who we work for (hint: we don’t work for our company, we work for our company’s customers!).
What to Do About Too-Close Relationships
So you’ve determined a relationship is too close. You simply can’t go to lunch with them and fire them that afternoon or start winding down the relationship. Your spend concentration is too high, or your customers don’t know whose side you’re on. Now what? Here are some options:
- Change category ownership. I’m actually a believer that categories should change hands every few years anyway. New people have new negotiation and supplier management approaches, and can see things differently than those who have been working the same trench for years. It’s a bit of a diversity argument as well; give yourself a second choice for how to manage a category. While I value category expertise, the previous category manager can still consult on a category they know well without owning it fully. If there’s a relationship issue, don’t be afraid to ask for a new assignment or move someone on your team.
- Add more competitors to the mix. Especially if the spend concentration is the issue, work to add more competition to that category. I understand this can be extremely difficult, but I also view the difference between a good category manager and a great one as the ability to build a strong and diversified supply base. Adding competition will take time and effort, and is certainly a short-term loss for long-term gain proposition.
- Ask for a new sales representative. If you enjoy hanging out with a sales rep outside the office, are spending weekends on their boat in the lake, and simply have found they’re your people, that’s awesome! To protect their reputation and yours, consider asking for a new sales representative for that supplier. The scary part here is: does the relationship still exist if they’re not my supplier? If not, then it was never genuine friendship. And if so, the professional relationship was too close. While I haven’t seen this kind of friendship happen often in my procurement career, I’ve definitely seen it. Have the courage to hold your integrity before it’s an issue.
Typically our procurement battle is about building better relationships, and the vast majority need nurturing instead of an arm’s length. Yet there are always a few that need a little introspection. If this article has you questioning, have the courage to chase that instinct.
If you’d like to talk about your supplier relationships, or anything else, let’s chat. If you’d like to get these articles weekly straight to your inbox and never miss one, sign up for my newsletter.
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