For those of you who don't know what gain sharing is, it's profit sharing. In a Supply Chain Management/Sourcing context, it generally refers to a compensation model where the provider shares some designated percentage of a savings/profit with the vendor whose performance was responsible for creating it. It should be a payment mechanism that aligns the objectives of the buyer with the capabilities of the solution provider. It need not be a winning lottery ticket handed over by the provider to the vendor, but it often is.
Why can't a gain share just be viewed as a deferred payment option for the provider?
Look, if your budget is so tight that your vendors can count the coins in your pants pocket, use that money for a tailor and consider a gain sharing arrangement. Gain sharing with your vendors, done strategically, can be an excellent way for providers to establish SCM capability. In amateur golf, they say the match is won or lost on the first tee -- when the bet is made. That's true. And it's the same kind of thing with these deals. Yes, your vendors continue to promote gain shares in a risk/reward context, but is that still valid? Frankly, was it ever?
Remember what my best friend's Jewish mother once said to me: "He who payeth, sayeth." Her point was: You -- the payer -- call the shots. You're the customer. How would your organization define success? Understand those metrics before you sit down with a solution provider who already knows what you're going to be serving before you invite them to eat.
The fact is, regardless of your financial situation, if you're a provider buying products and services that total a million or more annually, you can probably drive a deferred payment deal -- a gain share -- to get you started.
Here's a little circuitous background:
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