When a Supplier is Really a "Partner"

Early today, a friend in the sourcing business asked me about a strategy for dealing with a large incumbent supplier who decided to go directly to his customer’s CEO to circumvent or head off a competitive negotiation process (which may or may not include a reverse auction).

Historically, this supplier was clearly in the "partner" category -- the components it provided were specified directly into the company’s products (and were not negotiated in the past). Working with the buyer, my friend’s firm helped identify new sources of supply that, with slight modifications to their own products, could possibly enhance or replace their existing supplier's components -- and potentially bring significant cost savings. In this case, it is a set of highly complex parts, but ones that it turns out nearly half a dozen other potential suppliers are ecstatic about having the opportunity to bid.

This begs the question? How do you decide on a category basis if a supplier is just another vendor, or a true "partner" (i.e., a supplier who is so integral to your production / services, that developing a collaborative relationship comes before any price discussion)?

I believe organizations that practice Spend Management should constantly evaluate their "partner" categories and supplier mix to determine if a part (or service) can be sourced -- or bid out -- more effectively by broadening the supply base.

With global sources of supply becoming more diverse everyday, the supply market for even the most complex parts, components, and services is getting broader. In the example I just described, the buying organization took a partner strategy in the past because they were under the impression that it would be too challenging to switch suppliers. A few years ago, this might have been the case. But a detailed analysis of the global supply market in 2005 proved that switching -- and introducing competition into the bidding process -- was very much a possibility, albeit one that might require slight engineering and design changes. Obviously, this is a cost the organization will have to weigh in making a decision. But they're no longer hamstrung by a "partner" who has a tight grip on all of the pricing power in the relationship.

-Jason Busch

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