Are Your Vendors Happy?

We all know how important it is to keep customers happy. Don’t meet their needs or make them mad and they may leave you. Even worse, their comments may cause others to leave with them. Just like customers, you also need to keep vendors happy. If you don’t you may find your credit line cutoff and that you cannot get essential products and services. Imagine what happens when you cannot get the product you need to sell or use in your manufacturing process.

Pretty soon it impacts your company’s ability to satisfy customers. The accounts payable days analysis is a statistic you can calculate that indicates how good of a job you are doing managing accounts payable and keeping your vendors happy.

Days payable outstanding (DPO), defined also as days purchase outstanding, indicates how many days on average a company pay off its accounts payable during an accounting period.

Days payable outstanding means the activity ratio that measures how well a business is managing its accounts payable. The lower the ratio, the quicker the business pays its liabilities. It also shows the average payment terms granted to a company by its suppliers. The higher the ratio, the better credit terms a company gets from its suppliers. From a company’s prospective, an increase in DPO is an improvement and a decrease is of course, "not good for business and cash flow".

Value is a two-way street. Of course, vendors want to provide their clients with the best possible return on their investment. But they're a business, too. If a client makes a project difficult to staff, hard to schedule and costly to execute, more likely than not it will affect the initiative's outcome and value negatively.

On the flip side, though, there are clients, even very large ones, that help vendors get through their internal processes, bureaucracy and political hurdles. Clients that smooth the way for vendor teams internally are going to get a superior value from their investment in our services. Effort will be spent on the work the vendor was hired to do, not on jumping through hoops. The vendor staffs up, their people get to work and they are able to focus – which always results in better quality and value at the end of the day.

Once negotiations are closed, vendors want to shift their focus from winning the business to meeting the goals and expectations of their client. Yet they sometimes encounter major delays, bureaucratic hurdles and work stoppages based on internal processes and politics. This only hurts the client's project, yet it is often caused by the client organization's own internal structure and approach to management.

So. Look at your vendor management processes. Would you want to work with you? Are you making your vendors happy? Do they have a fast-track, once you've signed with them? Or do they have to navigate a complex system of approvals and oversight? Are your schedules in alignment with theirs? Do your internal teams understand what's going on, who's involved and what the goals are? How many levels of management do they encounter? Do they have a point-of-contact with authority?

Vendors usually expect to navigate these processes with every client. Even giant companies with hugely complex internal systems and challenging politics can get great value from their vendors by providing them with the tools and management resources they need from the start. As businesses invest millions into their technologies, and vendors do more and more of the work, any organization that engages with technology vendors on key initiatives risks a great deal by failing to be good to work with.