A few years ago, someone I respect told me, “We have great vendors. Still can’t scale.”
At the time, I didn’t have a clean answer. I knew the teams were working hard. Contracts were tight. SLAs were in place. On paper, everything looked right. But scale has a way of exposing what effort and documentation can’t hide.
Now I know the exact answer. It was the relationship model.
Most companies say vendors are “partners” but very few treat them like one.
In practice, many vendor relationships remain transactional, price-focused, short-term, and reactive. That works when volumes are low and complexity is manageable. It breaks down fast when scale, speed, or resilience starts to matter.
If scalability is the goal, vendor relationships need to evolve from cost control mechanisms into capability multipliers.
Why Transactional Vendor Models Hit a Ceiling
Transactional relationships optimise for efficiency in isolation: lowest price, fastest delivery, tight SLAs. What they don’t optimise for is system performance.
At scale, a few failure patterns show up repeatedly:
- Vendors optimise for their contract, not your outcomes
- Innovation stalls because risk sits on one side
- Quality issues surface late, when fixes are expensive
- Supply chains remain brittle under demand shocks
These aren’t vendor problems. They’re design problems.
Here are the shifts, I believe, can move vendor relationships from transactional to scalable:
Step 1: Segment vendors by strategic importance, not spend
One of the first mistakes teams make at scale is treating every vendor the same.
Not all vendors deserve the same level of engagement. Equal treatment feels fair, but it dilutes focus and wastes leadership attention.
A practical segmentation lens:
Transactional vendors: easily replaceable, standardised inputs
Operational partners: performance-critical but process-driven
Strategic partners: capability creators, innovation enablers, scale drivers
Strategic partners are the ones whose failure would slow growth, damage quality, or block innovation. These relationships require depth, not discounts.
Step 2: Move from SLAs to performance scorecards
SLAs measure compliance. They don’t measure contribution.
High-performing ecosystems use vendor scorecards that track:
- Delivery reliability and variability, not just on-time percentage
- Quality trends over time, not isolated defects
- Responsiveness during exceptions, not steady state
- Improvement velocity, not static performance
The intent isn’t surveillance. It’s shared visibility. Scorecards work best when they are reviewed together, not enforced unilaterally.
Step 3: Define joint KPIs that force alignment
If your KPIs and your vendor’s KPIs don’t intersect, misalignment is inevitable.
Joint KPIs work when they:
- Reflect end-customer outcomes, not internal metrics
- Balance efficiency with quality and resilience
- Reward problem prevention, not firefighting
Examples include joint fill-rate stability, cost-to-serve improvement, lead-time compression, or rolling defect reduction. When both sides win or lose together, behaviour changes naturally.
Step 4: Negotiate value beyond price
Price negotiations are easy to benchmark. Value negotiations aren’t which is why they matter more.
Strategic negotiations focus on:
- Capacity guarantees during demand spikes
- Priority access to innovation or tooling
- Process integration that reduces total system cost
- Risk-sharing models instead of penalty-heavy contracts
Often, the biggest gains come not from paying less, but from removing friction across the value chain.
Step 5: Orchestrate the ecosystem, don’t manage vendors
As scale increases, the challenge shifts from vendor management to ecosystem orchestration.
That means:
- Designing clear interfaces between partners
- Avoiding single points of failure
- Encouraging cross-vendor collaboration where dependencies exist
- Building redundancy without duplicating inefficiency
Resilient supply chains are rarely the cheapest. They are the ones designed to adapt under stress.
The Real Shift
Strategic vendor partnerships aren’t about being “nice” to suppliers. They’re about recognising that value creation at scale is distributed.
When vendors co-innovate, share risk, and grow with you, speed improves, quality stabilises, and resilience becomes structural not reactive. That’s when vendors stop being an external dependency and start becoming part of the operating system.
And that’s when scale stops feeling fragile.
#OperationsStrategy #ScalingSystems #SupplyChainLeadership #VendorManagement #BusinessOperations
