1. August 2009 • Vol. 46 No. 8 Published by the Restoration Industry Association
Risk Management
Inside:
Explaining Safety in
any Language
Preventing Employee
Theft – Part 2
Preferred Supplier
Programs
Preparing Your
Business for Sale
$9.00

2. 2 Cleaning & Restoration • August 2009 • www.restorationindustry.org
E
verybody wants to pay less for goods and services, but nobody wants a corresponding reduction
in value. Imagine what would happen if negotiating a series of price reductions on a vehicle
with a car dealer meant progressively losing the wheels, windshield, fenders, seats, heating system and
so on. Few buyers would negotiate because they would immediately see an erosion of tangible value.
It’s different with services. The value embedded in services is often less visible, less dissectible and,
therefore, more eagerly negotiated. Some services deliver a physical product such as restoration work.
Contractors offer a service to provide a tangible product.
Preferred
Supplier Programs
Preferred
Supplier ProgramsBy Kabir Shaal

3. because this is a very limited tactical approach.
Eventually it will fail to satisfy one of the participants.
It takes robust strategies to modify the status quo after
having allowed crass commercialism instead of collaborative
partnering to steer a relationship for a long time. Most
contractors don’t have the time, resources, or appetite to take
corrective action. Insurers usually won’t solve the problem
unless they will benefit.
Historically, insurance companies’ core competencies did not
include managing a contractor network. Contractors saw policy-
holders as customers and were left by insurers to handle them in
their own way. Local relationships thrived. Everything operated
at the tactical level with a heavy measure of differentiation in the
delivery of service.
Time for a Change
Over time, however, this practice began to be abused. The
construction boom of the last decade resulted in new, unskilled,
opportunistic entrants to the restoration market. Weather
conditions produced new records in claims frequency every
few years and job quality started to become secondary to speed
of work. Insurers noticed a lack of a commitment to service.
Rising claims costs added to their concerns.
Insurers started to look around for solutions. The auto
repair industry offered a convenient guide. There, centralized
buying power drove the relationship and repair shops had
started to view insurance companies as their customers. Two
major components of the relationship were a continuous
www.restorationindustry.org • August 2009 • Cleaning & Restoration 3
The Old Approach
Restoration contractors have always relied on enthusiastic
marketing to connect with their chosen customers. However, the
efficacy of their marketing strategies is questionable considering
the peculiar position contractors have placed themselves in having
insurers constantly negotiate the price of the service but never the
value of the product.Thus, the contractor’s labour rates, job cycle
times, profit and overhead are all open to negotiation.
On the other hand, value content such as delivering high
customer satisfaction, exceeding agreed upon service standards,
and providing free risk improvement advice are part of the
standard service offer.
Whittling costs is now standard operating procedure, but
withholding corresponding value is unthinkable. The profound
folly of this arrangement is rarely questioned and then only in
muttered asides. The ubiquitous “doughnut=job” equation (a
crude sales technique at best, an acute contempt for insurers’
integrity at worst) has backfired.
Contractors have only themselves to blame. There are no
profits from a relationship that relies on mutual back scratching
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4. 4 Cleaning & Restoration • August 2009 • www.restorationindustry.org
stream of work to the body shops and regular payment on
time, every time.
It seemed an easy template to apply to restoration contractors.
So far, however, it has been an arduous undertaking. Most
insurers haven’t invested enough effort in transforming their
operating models or in acquiring professional resources to create
and manage sustainable preferred supplier programs.The two
major requirements of professionally run supplier programs —
maintaining consistent streams of work and paying on time have
proved to be notably difficult to implement effectively. Equally,
most contractors have elected to bury their heads in the sand and
refuse to accept the inevitable: the glory days are over.The results
are sporadically effective supplier programs across the country
and many frustrated contractors hankering for the good old days.
Two Types of Insurance Companies
There are two varieties of insurance companies when it
comes to effective partnerships with suppliers. First, there are
the traditional insurers who still pursue reduced prices as the
best way to control costs. They have extensive regional vendor
lists, their adjusters have close relationships with contractors
and operate on a ‘win/lose’ basis when it comes to job costing.
Then there are the progressive insurers who simply reduce the
supply base in return for collaborative efficiencies that produce
real financial (and intangible) benefits for all. Unfortunately,
contractors may not understand the value-based needs of the
latter and continue to operate as if price is all that matters, i.e.,
playing the win/lose game. They’re missing an opportunity to
drive change.
The Basic Ingredients to Create Partnerships
As stated above, many insurers haven’t yet acquired
strong supplier management skills. However, just a few basic
ingredients make a good preferred supplier program
1. An open relationship with the supplier.
2. Good communication, especially on job progress.
3. Comprehensive baseline metrics.
4. Collaborative measures to achieve and measure these metrics.
5. Active management of these metrics and related service level
agreements.
6. A strong understanding of the restoration business’ drivers.
Any suppliers able to offer these items immediately
distinguish themselves as professional partners. Knowledgeable
contractors cultivate their relationships with insurance
companies along these lines. The goals are always:
1. To make it easy for the insurer’s employees to work with
pre-qualified suppliers, and
2. To make it possible for the supplier to reduce costs and
improve service at the same time.
You can start building effective relationships by thinking
about the steps below (the first three are vital):
1. Cover the high-level stuff (the strategy) thoroughly. The
details (tactics) will fall into place later.
2. Be selective in defining strategy, not exhaustive. It’s better to
collaborate on a few outstanding objectives than on a mass
of mediocre things. The prime reason partnerships fail is
Characteristics of a traditional vendor relationship:
1. The parties have a history of conflict, particularly when it comes to key
interests.
2. One party has more control than the other or dictates terms.
3. Neither party has clear ownership of the relationship.
4. The parties have impractical expectations of what the partnership
should achieve.
5. The parties have divergent ways of working.
6. Neither party communicates freely with the other.
7. Critical interests have not been identified or aren’t being supported.
8. Either party suspects the presence of hidden agendas.
9. The cost of interacting with each other outweighs the expected benefits.
10. There’s a strong sense of inertia when faced with the inevitability
of change.
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5. because the core strategies are overwhelmed by a morass of
undeveloped intentions.
3. Focus on results, not actions. For example, don’t attempt to
agree on a step-by-step service procedure; instead, agree that
service will meet an agreed standard. Many partnerships
stumble because they rely only on achieving tasks, not results.
4. Spell out your own purpose in forming a partnership. Say
what you’re trying to achieve up front. Later is too late and,
this is a good way to ensure thinking through everything at
the outset.
5. Pinpoint the stakeholders who can help or hinder the
relationship and deal with them first.
6. Encourage ideas from all stakeholders — participation leads
to commitment.
7. Consult within your own organization before approaching
or agreeing to work with potential partners. You may be the
boss, but you will learn something new if you do this. If
you’re not numero uno, this advice may save your job!
8. Make initial informal contact with possible partners to
find out what drives them, their attitudes, and their major
interests.
9. Expect the partnership to develop over time before you can
formalize it. This can take a long time, but shouldn’t if you
are diligent.
10. Be candid and honest.
All of this is easy enough to say but difficult to implement.
Anyone who has created a successful supplier-buyer partnership
will tell you it requires some resolute evaluation and compre-
hensive planning. The biggest barrier usually is admitting that
something needs fixing because dysfunctional relationships
don’t require a lot of maintenance once they’re allowed to go
haywire. Just occasional whining keeps them going indefinitely.
An effective relationship, on the other hand, takes a real effort
to establish and maintain. Compare it to a treadmill: It goes
around forever, it can exhaust you if you try to sprint all the
time, you’ll fall off if you lose your concentration or falter, you
can injure yourself if you overdo it, and it’s a wasted expense if
you don’t apply it. Your best results are achieved by working
with a trainer and working to a plan. I
Kabir Shall has professional qualifications in business and insurance, and has 27
years of experience in diverse international markets. His broad industry exposure
includes senior positions in claims, underwriting, brokering, project manage-
ment, bancassurance and procurement. While employed by a major Canadian
insurance company, he developed and led a series of strategic projects geared
towards assessing contractors’ capabilities, calculating true costs, deploying best
practice principles, and identifying sustainable key performance indicators.
Shaal Consulting provides holistic professional advice in the areas of sustainable
business practices and capability development. He can be contacted through
www.shaalconsulting.com.
www.restorationindustry.org • August 2009 • Cleaning & Restoration 5
Characteristics of an
effective partnership:
1. The parties see the need for a partnership.
Flinging your arm around someone and calling
them a partner doesn’t work unless they’re
going to reciprocate.
2. The parties acknowledge each other’s interests.
Be aware that parties with identical interests are
clones, not partners.
3. The parties identify the key interests that the
partnership will serve. Fulfilling these interests
must create a synergy.
4. The parties develop a shared vision of the
partnership’s purpose, enabling them to share
success when it occurs.
5. The parties represent the partnership in a
person or team, meaning the relationship
requires mutually accepted custodians. It can’t
exist on paper alone.
6. The parties accept it will take time for the
partnership to work and that the slower party’s
pace will prevail.
7. The parties cultivate compatible processes and
do not attempt to impose difficult practices on
each other.
8. The parties recognize the need for communica-
tion and are free to seek it at any time.
9. The parties accept that decision-making is
always going to be collaborative and consensus
is the goal.
10. The parties have effective managers and generally
run their business in a professional manner.
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Reprinted with permission from the August 2009
issue of Cleaning & Restoration magazine,
published by the Restoration Industry Association, © 2009