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Time to Reduce Your Vendor List?

Distributors can maximize efficiency and grow profits by establishing preferred vendor programs

By Andy Brown

The preferred vendor programs established by some distributors consist of no more than a list of printers written on sheet of paper. “Others will have complex technology and a somewhat integrated program,” says Richard Salamone, CEO of Normandy Group International, a Kettering, Ohio-based consultancy that helps industry companies with business process improvement and customer loyalty solutions. “In addition to a competitive market price, the most engaged distributors look at their vendors’ financial stability, quality processes, ease of doing business and customer support.”

Preferred vendor programs aren’t new. Salamone led the vendor consolidation effort at the Reynolds and Reynolds Document Group (which became Relizon and is now WorkflowOne) beginning in 1992. However, shrinking margins, industry consolidation and new technologies are prompting distributors to formalize their partnerships. “The questions distributors have to ask are, ‘Where am I today and where am I heading?’” Salamone says. “Part of it is looking at their vendor list and asking if that’s the list that they need to take them forward. Is it too robust? Is it weak in certain areas? Distributors may need core suppliers and strategic partners that will help them with technology issues, systems integration and training.”

Distributors also need to confirm that they’re partnering with printers who will survive the industry’s rapid evolution. “The core business is declining every year by some percent. Distributors probably have too many commodity suppliers in their portfolios,” says Salamone. “The industry has been plagued with too many manufacturers with too much capacity, and since the sales organization of every distributor in the country knows that, curtailing the number of suppliers is a difficult process.” Nonetheless, it’s critically important. “Creating and managing the supply chain is probably as important as how you go find a new customer and maintain a longer lasting relationship,” says Salamone.

Slimming Down
A preferred vendor program is more than an ad hoc list of printers that distributors use. It’s a way of establishing and evaluating partnerships with companies that can help achieve your business goals. “The objective isn’t always just to consolidate vendors,’ says Steve Himes, vice president of Normandy Group International. “It has to be connected to a higher level of strategic objectives. A distributor trying to enhance profit margins may build a very different supplier network than someone who is trying to build an enhanced service-delivery model.” A preferred vendor program based on business goals can help distributors of any size cut costs, boost profits and control the quality of their customers’ products.

The justification most distributors use for consolidating their vendor list is simple: If they buy the same product from multiple vendors, they can leverage that overall volume into discounts by steering it toward a few pre-qualified vendors. That realization prompted a culture change at Corporate Express’ Document and Print Management Group. In 2000, the Omaha, Neb.-based company discovered that it had a database of 12,000 vendors. “It was part of a major initiative in my department to do an analysis of the products we procured relative to the value we associated with each supplier,” says Maggie Witt, C.P.M., director of e-procurement and outsourcing. “In the first year, we decided there were 7,000 suppliers we didn’t have a core relationship with, that weren’t distinct, that we knew we could roll up into other suppliers.”

Witt and her team methodically categorized the types of products the company outsourced and the volume that went to each of the remaining printers. “We took that list and found our top echelon,” she says. “Then we shared the information with our sales and customer managers in the field. We didn’t do this in a vacuum. They came back and said ‘Here’s something you’re overlooking.’ It was a back-and-forth analysis.” Witt also met with potential vendors and invited them to be part of the new program. “We came out with a list of about 350 suppliers that are our core business partners,” she says.

Partnerships Are Good for Everybody
Preferred vendor programs are good for distributors and printers. By partnering with a known set of printers, Bob Morris, president of Techniform, Mission Viejo, Calif., avoids the inefficiency that results in bidding every job. The process also respects vendors who are unlikely to win the business anyway. “We’re trying to consolidate our vendor list so we’re not driving our potential vendors nuts,” he says. “We know for a fact we’re not likely to do business in Michigan, for instance, so why bother asking for a bid? We tend to look at vendors from a regional standpoint.” Morris is in the process of reducing his list of 120 vendors to approximately half that number.

Price is only one variable he considers when sourcing. “I consider their response time on the telephone when I make contact, turnaround time on quotes, responsiveness to my needs,” he says. “When things go well, just about anybody can do the job. When they don’t go well, how well do they deal with it?”

He also puts a lot of stock in the personal relationships he’s built. “At almost every one of the plants I do business with, I have a one-on-one relationship with someone.” That can be a determining factor, as Morris has at times switched plants to follow his contact if they leave for another job.

Morris relies on one other person in the office to help him source. He maintains a list of approved vendors for certain products. “I have two or three partners that I use in the large flatsheet commercial printing area, and two or three in the small sheetfed short turnaround area—it’s copy shop kind of work, but if you don’t do it for your customers, someone else will. I have at least two or three kinds of preferred suppliers in each one of those areas.”

Before he partners with a printer, Morris sends the potential vendor a document that includes his credit information, references and, most importantly, a letter outlining his vision. The letter communicates the type of relationship he expects to build (see page 19). “I send that along just to let them know where they’re coming from, because you have no credibility with a new supplier,” he says. As a small distributor, when Morris establishes a credit relationship with a vendor, he keeps an eye out for warning signs that may indicate that a company is fiscally unsound. “If they don’t give us a discount for early pay, then we’ll pay the terms,” he says. “One of the red flags is if they’re on the phone with us in 20 days asking for money.”

However, being a partner with Morris means he’s willing and able to work out problems. If something goes wrong or the printer’s service starts to slip, Morris picks up the phone. “From my experience, you know the principal players, the plant manager and the customer service people,” he says. “You can always make that phone call before you just throw them under the bus.”

Begin With Data
Jane Queen is part of the vendor relations team at Optimum System Products, a Columbus, Ohio-based distributorship. She’s responsible for managing the vendor review process that the company currently is undergoing. “We’re going to take a harder look at all of our commodities and at the suppliers we do business with now to see what we need to address in our partner program, such as service, quality control and performance type issues—not only cost,” she says.

The process involves organizing data about vendors on their list and scoring them according to a set of criteria. To accurately measure vendors’ performances, Optimum System Products maintains a robust reporting process. Queen recommends that distributors interested in consolidating their vendor list keep track of their orders. “Make sure you can get accurate data from purchase orders so you have a true account of what you buy, the different quantities and dollar values,” she says.

Among the categories included on the checklist, service carries the most weight. “Service is our top priority, along with proximity to our customers and the vendor’s responsiveness,” says Queen. “We have an error report program that tracks issues that arose with a vendor, whether they were plant-related or whether it was internal. We’ll look at those issues and challenges, the vendor’s competitiveness and their full range of products and services available to us. Also, are they on the forefront of technology? Do they have the ability to meet our deadlines? How do they react when we ask for rush orders? Those are the things we’ll use as we start to negotiate our partner program.”

Optimum Systems uses scorecards, literally, to rank vendors. “We score them zero through four, zero being unsatisfactory, four being excellent,” says Queen. Another scorecard uses a different method. “They’re rated poor, fair, good or exceptional. Say for instance their performance is rated as poor. That would mean they’ve achieved contract requirements only 70 percent of the time. To get excellent performance, it’s 100 percent of the time,” says Queen. “One of the questions we ask is whether we would recommend this vendor again.”

Partnering With Direct Sellers
Distributors with successful partnership programs focus on their customers first. If helping the customer means working with a direct-selling printer because it has the right equipment, distributor ADi Group will do it. The key to making the relationship work, however, is by selling program-based solutions to the client. “We have some local manufacturers who may be direct sellers in our marketplace. We’ve been able to successfully partner with some of these companies to develop specific programs that bring value to our clients,” says Scott Chapman, vice president of sales at ADi Group, Urbandale, Iowa. “There used to be a defined channel between the manufacturer and distributor. The competitive nature of our industry coupled with the increased speed of business due to technology has blurred those lines.”

For example, ADi Group sets up web-based online ordering programs for many of its clients. The online platforms allow customers to distribute custom products to their regional employees. “In a particular print program we may partner with a small local print shop that specializes in corporate identity products, such as letterhead and business cards,” says Chapman. “That same program may include envelopes, long run forms and cut sheet. Those products require a whole different set of manufacturing partners, most often manufacturers who sell only through the distributor channel. The value we bring to the client is the expertise and ability to align all pieces of the puzzle into the most cost effective solution.”

Direct-selling printers agree to the partnerships because they keep their presses running. “We partner with some small local commercial printers who also have direct clients in our market. The value that they bring is their expertise in the production part of the equation. They essentially act as the manufacturing part of our total solution,” says Chapman. “We establish the ground rules up front with both the print partner and our client so all parties are aware of how the program brings value to the client. Our vendor partners typically do not have the resources or expertise in developing and providing a total solution. They’re happy to have the work brought into their print facility.”

Andy Brown is managing editor of Print Solutions magazine. Email comments to abrown@psda.org.