Managing Strategic Provider Relationships

Michael R. Wood is a Business Process Improvement & IT Strategist Independent Consultant. He is creator of the business process-improvement methodology called HELIX and founder of The Natural Intelligence Group, a strategy, process improvement and technology consulting company. He is also a CPA, has served as an Adjunct Professor in Pepperdine's Management MBA program, an Associate Professor at California Lutheran University, and on the boards of numerous professional organizations. Mr. Wood is a sought after presenter of HELIX workshops and seminars in both the U.S. and Europe.

Like it or not, there are vendors who become (at least in the short-run) critical to an organization’s success. Thus, not all suppliers and providers of materials, goods and services are the same. Generally, vendors can be broken down into basically two categories: commodity providers (CP) and strategic providers (SP).

Commodity providers are vendors that resell branded goods and materials that are readily available in the marketplace (such as paper supplies, furnishings, etc.). Here, price and service level is king as the product being purchased is the same regardless of its source. For example, if you are buying Scotch brand tape or Hammermill 20lb copier paper, where you buy it from will not change the quality of the product. Thus, the price paid usually determines who the product is purchased from. Service levels can enter into the equation if there is a support or lead time criticality involved. Typically, there isn’t a great deal of vendor management involved when it comes to maintaining a positive relationship with commodity providers. They know they have to compete for the organization’s business on a continuous basis.

Strategic providers represent vendors that sell goods and services integral to the organization’s ability to effectively compete and deliver value to its stakeholders. These providers tend to have long-term relationships…

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