Relationship Counselling: What Dell and FedEx Can Teach You About Win-Win Relationships

Follow the example of companies like Dell and FedEx and create close, Vested relationships with suppliers.

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Let’s be honest: we all want to reduce costs. But if you focus on the bottom line at the expense of relationships, it will cost you in the long run. 

That’s because your success depends on strong supplier relationships. And the benefits go far beyond financial – including increased innovation and more creative problem solving. 

This is especially true in times of crisis, which is why it’s ironic that  so many supplier relationships suffered during the pandemic.

“When COVID hit, we saw many procurement professionals adopt the mindset of ‘us’ versus ‘them’,” says Kate Vitasek, renowned collaboration expert and faculty member at the University of Tennessee. 

“Instead of working closer together, the traditional approach is to hunker down and protect yourself in times of uncertainty.”

But that’s a mistake. If you want phenomenal business results, Kate says you need relationships that transcend the traditional buy-sell transactions that focus on one party “winning” while the other “loses.”

“Instead of what’s in it for me, the real industry leaders ask ‘what’s in it for we?’” Kate adds.

Time to get Vested

Kate and her fellow University of Tennessee researchers call this type of mutually beneficial relationship Vested because both parties agree to share fully in the risk and reward. A win for the buyer is a win for the supplier – and vice versa. 

As Kate puts it, the Vested business model creates true win-win relationships where parties are invested in each other’s success. Clearly a powerful incentive for excellent supplier relationship management.

“In an outsourcing relationship, a company and service provider may have a desired outcome to reduce the overall cost structure of operations (not to reduce the margin of the service provider),” Kate says. 

“By reducing the cost structure, the company ‘wins’ and the service provider also ‘wins’ with incentives that lead to higher margins.”

Why should I have Vested relationships?

The vested business model takes business relationships to the next level, sparking innovation, improving service and reducing costs – creating a true ‘win-win’. 

When applied, the Vested business model fosters a highly collaborative environment that sparks innovation, resulting in transformation, improved service and reduced costs, Kate says.

Sounds good, right?

Should all suppliers be Vested?

Simply put, not all suppliers are good candidates for Vested relationships. 

“Vested is designed to create and sustain complex strategic relationships,” Kate explains. “It creates relational contracts designed to work for the long term. It is not really for purely transactional contracts, such as procurement contracts to buy office supplies.”

Like any relationship, you need to consider your compatibility. Want to know where your relationships stand? Check out these free self-assessment tools from Kate’s organisation >

What does Vested look like?

The Vested business model is based on five rules:

1. Focus on outcomes, not transactions. 
Flip the thinking from a focus on specific transactions to desired outcomes 

2. Focus on the what, not the how. 
If a partnership is truly outcome-based it can no longer have a multiplicity of Service Level Agreements (SLAs) that the buyer is micromanaging. 

3. Agree on clearly defined and measurable outcomes. 
Make sure everyone is clear and on the same page. 

4. Pricing model incentives that optimise the business. 
The vested business model does not guarantee higher profits for service providers. Rather it creates a win-win economic model that highly motivates the supplier to invest in innovation.

5. Governance structure should provide insight, not oversight. 
A flexible and credible governance framework makes all the rules work in sync. 

Here’s what the rules look like together:

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How does this actually work in practice?

A great example of the Vested model is Dell and GENCO (now FedEx Supply Chain). The two companies had worked together closely since 2005, but the relationship was souring. 

The partnership was based on a ‘price per activity’ agreement where FedEx assumed most of the risk, yet they faced increasing cost pressures from Dell. Both companies reached the point where the relationship either had to change drastically, or dissolve. So they asked Kate and her team at the University of Tennessee to help them try the Vested approach.

Dell and FedEx agreed to follow the Vested Five Rules, and cut costs by 42% in the first two years. Instead of focusing on cost per box, they shifted the focus to profitability and margin. That led to FedEx tripling its margins, and Dell customer satisfaction reaching an all-time high. 

As John Coleman, General Manager at FedEx Supply Chain, put it: “Once we got to thinking clearly about how we minimise Dell’s margin loss from a return, everything else fell into place. It was easy to think about a common shared vision we could both rally around.”

Where do I start?

If Vested sounds interesting, start learning, says Kate. 

There are plenty of resources out there, including Vested courses developed by the University of Tennessee faculty (and some are even free), Kate adds. “These can help you learn the art, science and practice of developing Vested agreements that drive innovation and create value that didn’t exist before,” Kate says. 

And if Vested is right for you, then get started. “Many organisations perceive they are not ‘mature’ enough to make the shift to vested,” Kate says. “But your organisation doesn’t necessarily have to improve its maturity to make the shift to a Vested relationship.”

Instead, you can choose to develop maturity at the category level rather than across the entire procurement organisation. “Although some find this approach risky, others find it provides an easy stepping stone to Sourcing Business Models that offer increased value and innovation,” Kate says.

The science of a true win/win

Kate is quick to point out the concept of Vested relationships isn’t new. The business model is built on Nobel-winning concepts and based on decades of research into successful partnerships.

Yet, most companies will never realise the full benefits because they don’t follow all five Vested rules. For example, the fourth rule states both parties create a transparent and flexible ‘pricing model’, not a ‘price’. That means if you’re serious about creating strong relationships with your suppliers, you might need to change your thinking. 

“Vested is a true paradigm shift because it flips the conventional buying-selling approach on its head, using collaboration to “architect” a win-win agreement rather than ‘buy’ a good or service through competition,” Kate says. 

“If lower costs are the only goal, then Vested is probably not for you.’

Want to know more? Join Kate Vitasek on 20 May 2021 for a session on making Vested relationships work for your organisation. This exclusive session is for The Faculty Roundtable members. For more information on The Faculty Roundtable, please contact [email protected].