Getting Creative With Suppliers: Extracting More By Engagement, Not Extortion (Part 1)

Over on Supply Chain Management Review, there's a useful blog by Rob Swanson that asks the question: What Else Can My Suppliers Do? In it, Swanson does a quick and acceptable job of dispensing with the logic and common procurement argument of simply asking suppliers to do more for us (e.g., price concessions) versus actual engagement and collaboration. I've probably seen this argument made a hundred different ways. Swanson does it succinctly and eloquently. For example, "From the supplier's perspective, reactionary requests, such as across the board price reductions are punitive. This approach puts the supplier on the defensive and could leave bigger savings opportunities on the table."

Swanson follows this assessment with the classic supply chain critique of procurement tactics: "Pressuring suppliers may generate savings, but will simultaneously undermine long-term relationships and savings will be short-lived." But how can we best build sustainable, lasting relationships? Here, Swanson makes the case for engaging suppliers to think creatively and share needs – which can even open the door for tactics for rapid "OpEx spending" reductions. Some of these tactics are nothing new, and items we should always keep in mind when engaging suppliers (e.g., evaluating value-added elements/services supplier may provide, exploring alternative bid specifications – bundling).

But some of Swanson's ideas are ones we don't hear as much about, including "augment[ing] staff with strategic supplier resources vs. traditional staff augmentation firms ... introduc[ing] and/or [improving] contract incentives to influence supplier's to place a higher priority on continuous improvement ... and engaging suppliers to provide tactical back-office support functions." There are numerous other ones we could add to this list including engaging strategic further upstream, before final sourcing specifications are articulated, as well as exploring value-added downstream support areas, post-sourcing (analyzing lower unit costs when buying in large volumes vs. paying slightly more or just-in-time (JIT) or vendor managed inventory (VMI) programs.

- Jason Busch

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