Partnerships: The Numbers Point to Strategic Relationships

From "Buying Custom P-O-P" What's the distinction between a core bidding arrangement and a true partnership? As with most things in business, strict lines can be hard to draw as relationships constantly evolve.All P-O-P industry observers agree, however, that developing a true partnership can take a lot of time. "Back in the 1970's when I was growing up and my father was selling displays," says DNI Marketing Group's Jeff Pacelt, "companies would have 10-year or longer relationships with suppliers that basically became partnerships. With commitments like that, some P-O-P companies would open up their books, or guarantee a percentage markup, to clients." Sometimes, partnership status just occurs naturally, says Rand McNally's Jon Boeve: "Right now, about 95% of the work we do goes on the temporary side through one company. Honestly, I get a little bit nervous about having all my eggs in one basket. I talk to our sales contact up there more than I talk to my wife, for pete's sake. In this case, the company has just done a great job on everything and has never missed a due date." Most will prefer a more formalized approach, however. RTC's Richard Nathan says that "a structured relationship does not have to be contractual, but it does have to be definable. Sometimes you'll need to work for a year or so before you can even begin to properly define the terms that will validate whether or not the relationship is a win-win." Array's Rick DeHerder agrees, stressing that exclusive relationships work best when both parties think strategically. "You have to look at both the total selling process and the supply chain to design programs that drive results in a manner that lowers the total delivered cost in-store," he says. "It offers the benefit of totally aligning both organizations for maximum productivity, such as designing standardized components that will drive the cost of each unit, and the total program, down." One simple benefit of a structured agreement is determining who does and doesn't have the ability to give direction. "If you are a marketing person who has no real spending authority, don't pretend that you can cut purchase orders," says one producer. "Likewise, some guys who can only write up P.O.'s will try to pretend that they are creative. Do us all a favor and tell your supplier honestly if you only can carry the process to a certain point and will then have to hand it off. If a color question comes up, it's Mister A. If it's a financial question, it's Ms. B, and so on. Let's not waste time." But the potential benefits are almost limitless, says Aaron Henschel of Henschel-Steinau. He advises CPG companies to make sure their producer's business systems and processes synchronize with those needed on the brand or retail side. He lists design/CAD software, EDI, electronic documentation & specifications, quality control, scheduling, traceability programs, flexible output reporting, a business continuity/emergency plan, security procedures, in-house testing labs and sufficient warehouse storage capabilities. "In some cases," he adds, "a producer may assemble a dedicated team including the creative, sales management, customer service and project management functions that can embed within the client's site if needed."Counter PointNot all producers agree. "We don't recommend single-source, exclusive relationships with any given single supplier," says Richard Fellinger, CEO of Mechtronics. "No single company can be all things to all people. It's not healthy for the supplier or the client. There are companies that are more suited for certain types of work than others. When a supplier tailors its business model to a single client's needs, it creates the potential for disaster." Clients, he adds, should strike a balance "between exclusive relationships and the other extreme of spreading a budget so thin that no one supplier has an economic incentive to give the client the attention they require."Boeve worries about partner burnout. "When you've got your suppliers working 24/7, and they're so bogged down hitting all your deadlines, you don't give them a lot of time to sit back and explore things," he says. "So we are putting together formal brainstorming sessions, with all of our creative folks, on a quarterly basis." Companies that do wish to structure their relationships into partnerships have a variety of options. "One approach is called 'open book,'" says Nathan, "which means the producer provides the customer with 'our cost' to produce or acquire components along with agreed-upon overhead and margin. There is full, auditable transparency. In the traditional supplier-buyer relationship, once a buyer accepted a price, that's what they were charged even if the supplier suddenly discovered a way to dramatically lower his costs. The supplier just kept his margin. In an open book relationship, however, the client gets the full measure of any cost savings, while the supplier still benefits from a structured, predictable relationship."Broan-NuTone's Karen Formico, meanwhile, says she's begun working with Fort Worth, TX-based Miramar Designs as a P-O-P agency: "They work on project design and consultation for a price. They have the option to bid on the project should it come to fruition, but there are no expectations of production. This arrangement is new, but definitely positive, and I look forward to a long relationship."Imagine Print Solution's Briggs says he's seen other contracts that give the producer the right to do business with them, but also give the client the right to bid out projects, if they so chose, giving the producer-partner the first right of refusal. RII's Krepline says that producers have to constantly document their worth to their client organizations, a task made tougher with ever-increasing turnover among client personnel. "In our partnership agreements, there are agreed-upon benchmarking techniques that we use to make sure we're all comfortable," he says. "They can range from agreed-upon cost or innovation initiatives to service levels."At the end of the day," he adds, "many of these contracts can be self-renewing if we meet performance measurements. The best way is to scorecard them while they scorecard us. But it takes a long time to get to that level."

Partnerships: The Numbers Point to Strategic Relationships

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