Beating Up Suppliers: Is it Sourcing Payback Time?

Last summer, I took my five year old to the boardwalk in Ocean City, New Jersey. The trip brought back memories from my own childhood -- especially the "whack-a-mole" game that still fascinates boys of all ages. There just seems an innate sickness in most males that makes us want to smash the inanimate creatures (the fairer sex seems far more civilized in this regard). Still, I suspect that this is precisely the feeling that many of us harbor with regard to our suppliers who were all too quick to pass along price increases during the seven-year bull run leading up to the recession. But is it time to take out the hammer and play supplier whack-a-mole to get back at our supply base?

A recent Supply Chain Digest piece has some good thoughts on the topic and also why many of us may feel more tempted in the current environment than in the past to take out the hammer. This is because the current demand-challenged environment "follows a period in which for 2-3 years, suppliers of all sorts were in constant price increase mode. This scenario resulted from dramatically rising commodity prices, a generally robust economy, and an overall environment that often left procurement managers somewhat resigned to the steady drum beat of rising costs." Translation: not only were suppliers trigger-happy on raising prices in recent years -- they did so on a near continuous basis, were unapologetic and often in ways that made it difficult to tell if a price increase was justified.

Still, two wrongs don't make a right -- even when it comes to achieving the most savings today. Rather than make negotiations personal, I believe companies owe it to themselves to aggressively benchmark pricing these days and then strategically source the categories that present the best opportunities (while going back and haggling with suppliers in other categories where smaller price decreases are possible). But, as the article suggests by way of a GM example, why not use this time to not only get price concessions, but also to tie contracts to market indexes (e.g., Metal Miner IndX) to enable savings, transparency and trust? In today’s environment, the article notes, "indexes can help a lot, because suppliers certainly may use drops in their own costs to pad profit margins, especially for complacent purchasing organizations."

- Jason Busch

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