Across industries and sectors, vendors are of prime importance in the value chain of an organization, and the start-up economy is no exception. Vendors constitute the backbone of the backward linkages that go into delivering an innovation, and demand substantial time and resource from start-ups. In this issue, the founders of three of our start-ups – Amarsh Chaturvedi (Transerve Technologies), Anil Kumar (SmartRx) and Rajat Gupta (TESSOL) share with us their time-tested vendor management strategy and the key ingredients of a successful vendor relationship.
Vendor Management: How Important Is It?
Each of the three founders unequivocally emphasized the crucial contribution made by vendors in enabling their enterprises churn out quality products and services. For Transerve, which fosters sustainable planning by providing hyperlocal information system and geo-enabled technology solutions, field survey is one of the most fundamental processes that provides crucial inputs to product development, implying that the quality of vendor deliverables directly translates into the quality of products and services of Transerve.
SmartRx, a healthcare start-up that provides software solutions and services to enable healthcare providers deliver patient centric care, experiences a direct correlation between its vendor quality and customer experience. TESSOL, which designs manufactures and integrates thermal energy systems for cold storage, and process heating / cooling applications, perceives its vendors as ‘partners in growth’.
Quality considerations apart, a significant pie of the cost structure (between 30% to 50%) is attributable to vendor costs, making vendor management a critical function for these start-ups.
Selection and Empanelment
Industry references and personal connections are the two major sources of pooling prospective vendors for the selection process. For the core/critical components being outsourced, each of the start-ups seem to have adopted a similar selection strategy as they have evolved over time. To incorporate de-risking in the choice of vendors, the process is multi-layered with filters in each stage. It usually commences with detailing specifications of requirement, discussions on expectation setting, giving work samples, rating the performance followed by a field visit and credibility check in terms of past track records. Amarsh from Transerve adds, “Eventually, based on price quotes, assurance of deliverables and overall alignment, one vendor is selected while 2-3 of other competent contenders are kept as a pool for fall-back option.”
At TESSOL and Transerve, Vendor Management is a specialised function having more than one personnel at the helm garnering support from a cross-functional team and inputs from Production and Quality Management teams. At SmartRx, the founder along the management team takes decisions keeping in mind the long term implications of vendor selection for the company.
Anil’s take on international vendors is that since start-ups are no longer eying only the Indian market, therefore it makes sense that they are tapping vendors from abroad as well. As for SmartRX, it has foreign vendors for cloud services, calendar management, and also hires e-lancers from abroad based as and when needed.
“Tapping the international market for vendors definitely gives more flexibility and variety, and might even lead to better quality vendors or same quality at lower cost. The issues in managing international vendors usually arise because there is little or no scope for in-person between the start-up and the vendor,” adds Rajat. For Transerve, the experience with international vendors has been a mixed bag, specific to the geography and component being outsourced.
The three founders agree that for specific components which are crucial to product quality and delivery, having long-term, sustainable relationships with vendors helps, while when it comes to purchasing standard raw-materials that do not require specialised execution, start-ups can explore more competitive options. “Thoughtless switching leads to loss of joint learning that happens with a vendor-partner,” Anil from SmartRX says. Amarsh goes on to add that at Transerve, sustainable vendor partnerships give a sense of security as the vendor becomes sensitive to the start-up’s cash-flow, particularly important for those operating on a project-basis.
The key take-away that emerges from the conversation is that vendor management is based on mutual business empathy and charting out a joint growth trajectory. As Rajat puts it across deftly on a concluding note, “Start-ups should look for vendors that grow with them and the approach should be to come up with win-win deals, there are no short-cuts to any relationship.”