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Vendor relationship management: Best practices for solution providers
Vendor relationship management is no less important than customer relationship management for solution providers looking to unlock business growth. Learn best practices and why small solution providers especially should make VRM a top priority.
Solution providers may have a formalized customer relationship management strategy in place, but for Ryan Morris, principle consultant at Morris Management Partners, vendor relationship management is no less tied to the success of the business.
"The relationship we have with customers yields revenue on which we make margins that turn into profit," he said. "Well, those margins come because of the relationship that we have with our vendors … whether it's the structure of the discounts that you receive from them … or whether it is additional resources in the form of incentives or rewards or promotions or … things like demonstration units or training programs. All of those things are assets. … They all translate directly into money in the same way that all of the activities we do with customers translate into money."
In recent years, vendor relationship management has evolved into a driving force behind the changing power dynamics between vendors and solution providers. Whereas in the past, solution providers were more likely to accept the vendor's layout of the relationship, more sophisticated solution providers today are closely examining their vendors in regard to their own profitability and looking for ways to assert more control over these relationships, resulting in more balanced relationships overall. "[Vendor relationship management] is a fairly new practice that we've been seeing in terms of the overall management, overall relationship, from the vendor side and from the solution provider really being able to look at all of the vendor relationships as a whole and [deciding] which ones … they want to continue [with]," said Diane Krakora, CEO of consulting company PartnerPath.
Ryan Morrisprinciple consultant, Morris Management Partners
However, as relationships change between vendors and solution providers, some solution providers get more of their fair share of the resources that vendors offer, Morris said, "because they went out and competed for them."
"In my version of business management in the channel, every bit of attention that you pay to competing for your customers [should be equaled by the] attention paid to competing for the favor and the investment of your vendors, because that equals money just as much as the customers do," he said.
In this article, we will look at several of Morris' recommendations for best practices that every solution provider should adopt, especially small solution providers that may be struggling to grow.
'It has to be a formal job responsibility'
First on the list of Morris' recommendations is appointing a formal vendor relationship manager. "The basic best practice is that [vendor relationship management] has to be a formal job responsibility of someone on the team so that it is actively measured, monitored and managed," he said.
There will be variation among solution providers on how exactly they assign the responsibility. For example, if a solution provider works with a dozen vendors, some might have one person manage all of the relationships while others have one person to manage each relationship, he said.
Harry Zarek, president of Compugen Inc., a Canadian solution provider that has partnerships with Cisco, HP, Microsoft, NetApp and other broad-base vendors, said Compugen assigns vendor relationship management responsibilities to multiple individuals within the organization. "In our case, given the breadth of the relationships we have, it's multifaceted, so we can't have it [be the responsibility of] just one person," Zarek said.
A vendor relationship manager's responsibilities include business planning around marketing development funds (MDF) and incentives the vendor provides, Krakora said. "They'll do the MDF planning to make sure that they get all of those funds. They will make sure that they're getting every incentive dollar they can, be that a deal registration, a growth incentive, [etc.]"
Have multiple points of contact
Morris stressed the importance of having a variety of connections within the vendor organization that span from executive to sales execution resources. "Instead of [saying], 'I only know my channel manager or my sales rep from the vendor and that's the only person that I ever talk to," solution providers need to know the vendor's channel chief, vice president of regional sales, program director and other key figures, he said. Additionally, these people need to know who you are. This way, the relationship is not tied to a single point of contact and to just one type of resource.
"I think a mistake that a lot of solution providers make is they say, 'Oh, I need to get higher. I need to expand relationships higher in the organization, so that I'm not just talking to my sales rep. I need to go talk to the executives. Well, the mistake is they go talk to the executives and lose contact with the sales rep. You have to maintain the entire relationship," he said.
"When those people know who we are and what we do and the value we add, then our ability to not only get engaged in opportunities is better, but also, if anything goes wrong, if there's anything sticky that comes up, whether it's a channel conflict issue or a special pricing question … then my ability to resolve that issue in my favor goes up significantly."
'Relationship management has to be proactive beyond the transactional flow'
Another best practice for solution providers is to maintain proactive contact. Once you have established multiple points of contact at the vendor, you need to frequently interact with them outside of your transactions.
"Not only do we have [to have] more than one contact, but we talk to those people outside the context of a deal that we're working on as often as is reasonable," Morris said. "Whether it is in social settings or in a quarterly business review meeting or anything in between, [you] need to know those people beyond the business that [you] do with them."
Zarek said that Compugen's connection points with its key vendors span the organization. "Right across the life cycle of the solution, we maintain contact points with our key vendors," he said.
A challenge that solution providers must face is "noise," Morris added, as there are generally numerous channel partners clamoring for very few channel resources at the vendor. If they don't maintain regular and effective contact, partners can often get lost in the crowd.
"It's very easy to get washed away," he said.
Communicate a specific business case about your relationship
The substance of a solution provider's communications is critical, so solution providers need be able to communicate exactly what they do, what customers they target and what role the vendor's products plays in their businesses, Morris said.
Solution providers also need to translate this information into numbers that the vendor can understand and essentially say to the vendor, "When you do business with me, here's how much activity we do. We produce this much opportunity that yields this much revenue direct to you as a vendor," Morris said. "If [you] can't communicate that business-strategy-plus-actual-numbers [math] in the form of a real business case, then it gets very squishy trying to justify why [the vendor] should want [you] in their channel."
As an example, he said, a solution provider should be able to say, "'Not only do I produce $1 million of revenue for you, but look at the resources that I invested in marketing, that yields activity in the sales process, that yields customer relationships plus the aftermarket technical support."
"We have to be very proactive about communicating real numbers in a business case," he said. "'This is what I actually do for you out here in the world. And if I were not here or if I were not happy, well, it would have a cost to your business.'"
Understand the vendor on a business level and individual level
"We need to actively understand the business of the people that we deal with," Morris said. "In other words, what's the go-to-market strategy that the vendor has? What is the structure of their channel program? What role do I play in it? Why do they do it that way? And then, at each of the levels -- at the corporate level, at the regional level, at the individual sales rep level -- how do they make money?"
Morris urged solution providers to think of a vendor's business in exactly the same way they think of their own businesses: You are probably not thinking merely about the revenue you generate, but also the cost that you incur, and therefore the margin you retain. Your vendors are looking at their businesses in the same way, he said.
A solution provider should be able to answer questions like:
- What are my vendors' expectations for hitting their own targets?
- What are their quota requirements?
- Where do they actually make margin?
- What's high priority for the vendor?
"If I'm talking to an individual sales representative, I need to know: Does that person get paid out on revenue? Do they get paid on the margin to the vendor business? Do they get paid on new accounts? Do they get paid extra for running marketing programs? [Are you] asking them to do things that contribute directly to their own paycheck, or [are you] asking them to do things that distract from their paycheck?"
If a solution provider understands the vendor's business and how they get paid on the business and individual level, "It would be much easier to communicate a relationship [in terms of]], 'Look, I'm here to help you get what you want,' [and] not just, 'I have a request and I want you to fulfill it.'"
Why the small stay small
Historically, one of the primary reasons why small solution providers don't see the business growth they desire is that they are neglecting to proactively manage their vendor relationships, Morris said. Small solution providers "can't find the way to resolve that catch-22" where vendors invest more resources, money and time into their largest partners. So while all solution providers should do vendor relationship management, Morris said small solution providers most urgently need it.
"There's an inevitable [gravitational pull with] revenue size, so that the larger solution providers are naturally going to get more attention from their vendors. If I am not large, the only way I get any attention at all is to do this kind of proactive relationship management," he said.
Solution providers are playing in a game where size matters. "If the vendor's not reaching out to you as a small solution provider, either you admit it and say, OK, well, I'm little and I will always be little,' or you do something about it."
For a large solution provider, vendor relationship management is a question of optimizing relationships, maximizing efficiency and reducing chaos, he added. But for a small solution provider, "vendor management isn't about maximizing or optimizing; it is about creating opportunity."
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