Procurement strategies in declining and monopolistic supply markets

We wrote recently about the challenges for procurement in dealing with rapidly changing markets, where ‘business’ colleagues are always going to be ahead of procurement in identifying new and innovative suppliers.

But there is another issue that is in some sense the opposite position, from a market point of view, and one that also brings challenges for procurement. Again, this arose from discussions around our recent webinar on procurement in the financial services sector.

Elements of that sector are very much ‘legacy’ businesses and products. For instance, cheques are gradually dying out as more and more people use electronic means to transfer money from one person or account to another. Yet a whole industry has been built up over many years, all based around the cheque. Printing, distribution, handling, cheque clearing ... all functions that are declining and one day will disappear, we must assume.

Now the suppliers in these markets can react in different ways. They can look to develop new business, and perhaps leverage existing supply relationships into working for those clients in the new areas that might arise to replace the legacy processes.  Or they can bury their head it the sand, and just hope for the best. Or they can look at those declining areas as ‘cash cows’, and look to squeeze more profit out, either to fund new areas or simply to maximise their return to shareholders in the short term.

Obviously, the impact on buyers can be quite different depending on the approach taken by the supplier. And what can exacerbate the problem, in financial services for instance, is that some suppliers may hold what are pretty much monopoly supply positions. There aren’t many players in the cheque clearing market, or indeed in cash handling, another business in decline.  Simply switching suppliers if one becomes too greedy is not always easy or even possible.

So, just as we said in our previous article on innovative suppliers, procurement needs to develop specific strategies to add value in these cases.  It’s not easy dealing with a monopoly supplier in a declining market, so thought is needed around negotiating strategies, potential for introducing competition  (not easy if the market is declining), moving to transparent pricing arrangements, and other approaches that can help somewhat in such situations.

Now if the supplier is forward looking, they may have a desire to be on good terms with the buyer, in order to help them  secure work in other areas. But a monopoly suppler who is fixated on a pure cash cow strategy is a tough one to handle.  Any other ideas from our readers?

 

First Voice

  1. b+t:

    Make the case for a procurement hospitality budget.

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