This is the fifth of six serialized sections of Getting Your Product out the Door: Product Development Basics. This section, “Sourcing and Vendor Relations,” provides tips, tools and best practices on finding, evaluating and developing positive relationships with suppliers.
Most of us understand that building a product from the ground up requires more than a great idea. And whether you’re starting your own business or creating a new product for a big company, everything from the logo to the light bulbs needs to be in place for you to succeed.
But how do you find suppliers that are right for you? How do you protect your company during negotiations? And how to you keep your supplier relationships strong and healthy over time?
The challenges inherent in vendor selection only increase when the vendor in question will be responsible in part for your product itself. It’s also much more difficult to find the right outside resource when you’re unsure how to evaluate the quality of the work. Yet, the direct impact of suppliers, from freelance writers to software developers, on our product development will only continue to grow. The stakes have never been higher.
Getting Your Product out the Door: Sourcing and Vendor Relations is the fifth article in a six-part series compiled by product owners with decades of experience in creating and launching successful subscription products. The series is full of specific tips, checklists, examples and tools as well as best practices and foundational knowledge that will help you select the suppliers that are the right fit for your business.
This series is written with the beginner in mind. The content is explanatory and foundational, designed to give someone new to product leadership the practical tools necessary to build a product in a timely and efficient manner.
Getting Your Product out the Door: Product Development Basics
Part 5: Sourcing and Vendor Relations Suppliers and Subscription Businesses: How the Relationship Has Changed
As we discussed in the first article of this series, “Getting Your Product out the Door: What is Product Development,” publications are no longer primarily, or sometimes even secondarily, paper-based products. And while subscription-box businesses and other forms of recurring retail may deliver hard goods to their customers, those customers most often interact with the business via software applications.
Yet, while there have been supplier sourcing activities in publishing and all subscription businesses since the printing press was invented, supply-chain decisions in times past were largely handled by the production shop. The role of product owner didn’t exist. But as technology increasingly defined not just the delivery mechanism of the product but became the product itself, and freelancers became the rule rather than the exception in content creation, the need for a new breed of sourcing grew.
Happily, the practice of supplier sourcing has evolved with these changes, and today there are many helpful tips and tools to guide you in the process of finding the right vendors for your business.
Types of Suppliers: Some Key Definitions
While the line between “direct” and “indirect” suppliers – in terms of their evaluation, onboarding, and management – have increasingly blurred over the past few decades, there are terms and types of supplier relationships that it’s important to be aware of. The following chart lays out a few of the key definitions, and what they mean to you:
Type of Supplier
What You Should Know
|Direct||Suppliers that deliver items that become a part of your product.||Authors (articles), product suppliers (for subscription-box businesses), software engineers (online games or other customer-facing apps).||Be sure to include anyone building customer-facing software or apps in this definition, and treat them as you would any supplier of goods that your customer will interact with.|
|Indirect||Suppliers that deliver items that that are not directly part of your product.||Content writers (marketing), office supplies, software engineers (accounting systems).||Don’t overlook these relationships – what would happen to your business if you lost your accounts receivable data?|
|Consultant||Strictly speaking, synonymous with a contractor, although generally expected to provide advice and insight.||Efficiency expert, competitive analysis, strategic planning.||Do not pay 100% of fee upfront; set up incremental deliverable milestones.|
|Contractor or Freelancer||Strictly speaking, synonymous with a consultant, although generally expected to provide specialized work for hire.||Freelance writer, software engineer, web designer.||If this individual is on site at your facility and using your resources (PC, etc) they may be considered an employee in the eyes of the IRS – get advice from an accountant to be sure.|
|Contract Hire||An individual who you employ 1:1 through a staffing service. Frequently a skilled hire such as an IT professional.||Firms such as TekSystems.||You pay the service provider, not the individual – be careful not to miscategorize these workers as contractors/consultants.|
|Temporary Employee||Similar to a contract hire, although the term generally refers to a short-term, lower-skill hire.||Firms such as Kelly Services.||Great to leverage such services for periodic needs (such as box packing) during peak times.|
|Outsourced Service||Turning over fulfillment of an operational unit or project to another company; often, in publishing, it is to a technical services firm to build software or apps.||Firms such as MongoDB.||When hiring an outsourcing firm, ask to meet with the person who will be your ongoing interface. Is this person qualified, and a good fit with you and your team?|
|Offshoring||Outsourced services located outside of your own country’s borders.||Technical services in India or Israel; call centers in Ireland or Canada.||Balance cost with customer satisfaction when choosing an offshore firm.|
Understanding the terminology of vendor relationships is a good first step in effective sourcing, and leads logically to a discussion of the written agreements used in hiring suppliers.
“Work as hard on building a good supplier relationship as you do building a good relationship with your customers.”
The Documents of Supplier Relationships
You should expect to create – and negotiate – binding agreements with vendors that protect both them and you. There are also special tax forms needed when dealing with contractors and freelancers. While the following list is neither exhaustive nor is every document necessary in every supplier relationship, these are common agreements you should be aware of and use when necessary:
Non-Disclosure Agreement (NDA)
What Is It?
- A non-disclosure agreement (also known as a confidentiality or confidential disclosure agreement) is a legal contract between you and your prospective supplier that precludes each party from using product, strategy, marketing, pricing or other proprietary information to compete against each other. (1)Rocketlawyer or LegalZoom or even free NDA copy from a site such as NOLO to save time and costs.
Service Level Agreement (SLA)
What Is It?
- A service level agreement (SLA) is a contract between a service provider (either internal or external) and the end user that defines the level of service expected from the service provider. SLAs are output-based, meaning their purpose is to define what the customer will receive. (2)
What You Need to Know:
What Is It? What Is It?
Request for Proposal (RFP)
What Is It?
What Is It?
- The 1099 (officially, Form 1099-MISC) is a Federal tax form you file for payments made to freelancers. (3)Given the immense amount of information available online, it’s simpler to identify potential suppliers than ever before. With a single Google search, you can discover company-provided information as well as client reviews, litigation history and any “in the news” events the company has been involved in.
Yet, you still need to decide for yourself, based on the unique needs of your company. What are some facets of supplier behavior to focus on, and questions to ask yourself, during your search?
Have they ever reached out to you? What was the experience like? Smart suppliers are careful about customer experience long before the actual sale is made – and some aren’t. If you’ve received high-pressure or annoying sales calls, are inundated with valueless emails or, on the other hand, can’t get a response to a product inquiry, the supplier may not be right for you.
Tip: Keep an email folder of marketing communications received from suppliers you may need in the future. You can use these as a good place to start your vendor search when the time comes.
What do the experts think? These can be industry experts (e.g., “Top 10” lists from reliable sources are a good place to start) or connections you have who know the area of expertise. Reaching out to a developer or CTO you used to work with to pick their brain is a great way to get insider information.
Are they looking for customers like you? There are technical service providers, software platforms and web designers for every budget, need, and niche. Look for providers who are experts in working with recurring retail/subscription businesses, with providers who have experience with your market segment or those who provide solutions for businesses of your size and budget parameters.
The Sourcing Process
Defining what you’re looking for from a supplier is similar to the process of creating product requirements, discussed in article 4, “Getting Your Product out the Door: Writing Requirements.” Like product requirements, you should be specific, clear and detailed. While you may not worry about a detailed sourcing process for office supplies or telephone services unless you’re a large company, diligence in selecting technical, information or marketing services is critical, because they’re both complex and market-facing.
So where to begin? Sourcing starts by getting a good handle on what it is you need, and a great way to do that is to create an RFP.
Define Your Need:
Defining your need may seem simple, initially. “I need someone to build me an app!” or “We need to improve our marketing!” But clarifying and driving to the specifics beneath the overall goal will ensure that you find the right supplier and get what you’re looking for as a result.
As mentioned earlier, defining needs for a supplier is very similar to creating product requirements in that you need to lay out key pieces of information so that both you and the prospective supplier can reach an informed agreement. While sourcing policies and procedures can vary from company to company, a common result of this preliminary stage is the Request for Proposal (RFP) document, which includes the following:
“Please include a price quote, a detailed breakout of project milestones,
three references and links to work samples.
Any response over three pages long will be summarily burned.”
The Request for Proposal (RFP)
Elements of an RFP depend on your project, decision process and company culture – there are no right or wrong ways to create an RFP. You do want to make sure that it’s clear, detailed and complete; using the checklist below is a good start:
Be sure to get specific about functionality needed, what you can pay (ask for bids, certainly, but give an idea of your budget). Also, provide insight into the need for and importance of scalability, ease of integration, “right price for right service,” whether you need services and not just software or product and delivery guarantees.Due to the highly personalized nature of an RFP, templates aren’t as valuable as they are for other business functions, but can find a solid one here.
Once you’ve received some responses, it’s time to choose the right supplier for you.
The Evaluation Process
According to Supply Chain Quarterly, acquisition costs account for only 25- 40 percent of the total cost for most products and services. In other words, what you buy may not be as expensive as how, and from whom, you buy it.
So, as you evaluate your supplier options, keep the following in mind:
Total cost of ownership. Be sure to allow for the costs of operating, training and maintenance costs as well as the amount of time any switchover to a new solution will take.
Included versus ala carte costs. A follow-on to a total cost of ownership, it’s important to understand exactly what is and is not included in any supplier bid. Did the technical services firm bidding revamp your CRM system, for example, include some hours to train your team? What sort of ongoing support to you receive? Is it 24/7 or only business hours and is it restricted to online chat or do they also offer access to a human?
“For larger projects and long-term contracts, you might consider launching a small pilot project in order to form a relationship with the vendor.” —Ignite Outsourcing
Transparency. Most of us feel more comfortable if we can speak to the team, ask questions and (in the case of actual items to be delivered in a subscription box) review product samples. How open is a prospective vendor is to these requests will give you an idea whether your ongoing working relationship will be a good fit for you.
Responsiveness. Because if they’re not returning your calls during the selling process, how quickly will you hear from them if your server is down? Particularly in the deadline-driven subscription business, this characteristic is a must-have in a good supplier.
Identifying and choosing suppliers is time-consuming, but the process doesn’t stop when the contract is signed. To get the best from your suppliers, it’s in your best interest to not only actively develop the relationship but to be as good a customer as you want them to be a supplier.
So, plan to onboard your suppliers just as you would a new employee. Make sure you review the goals of your business, the role players in the project and the supplier’s impact on your success, in detail, as soon as possible. Make sure both sides of the equation have names and contact information so questions can be answered quickly. And don’t hesitate to correct a course that isn’t working. Communication is key to any successful supplier relationship.
Finding and onboarding an excellent supplier is a significant task accomplished! But it’s only half the battle; your performance as a customer now comes into play in determining the relative success of the relationship. Whether your “supplier” is a freelance writer, software provider or landlord, there are a few basic rules you can follow to keep up your end of the supplier/customer bargain:
Pay on time. Certainly, negotiate the best deal you can, but, once you’ve agreed to terms, keep them. If you run into cash flow problems, be upfront about it as early in the billing cycle as possible.
Meet your deliverables. One of the greatest sources of anxiety for a technical services provider (or other project-based supplier) is that the project will be delayed by the customer’s lack of focus on approvals, feedback, and other critical deliverables. Remember that these delays not only impact your project but your supplier’s livelihood!
“You cannot hire a writer, push them in a remote corner of your office
or some cyber garret on the Internet and
expect them to create great content for you.” —Hubspot
Make it personal. Just as you work to onboard your supplier, be willing to learn more about their business too. What are their key challenges and concerns? This understanding will improve your communications and help them do a better job for you.
Today, most businesses understand that building a nurturing relationship with your suppliers is as important as doing so with your employees. But the foundation of that relationship is built on solid sourcing decisions, which requires planning, focus and clarity. So, invest time in creating clear and detailed RFP’s, researching potential suppliers and integrating them into your business through attentive onboarding. After all, they could be the difference between your company’s success and failure!
Next up is the conclusion of this article series, “Getting Your Product out the Door: Prioritize, Test, and Launch.” See you then!