Don't outsource supplier relationships
Doug Smock, Editor-in-Chief -- Purchasing, 6/17/2004 2:00:00 AM
In today's economy, purchasing may be the most important competitive advantage your company possesses.
"Many companies unwittingly outsource the very things that differentiate them, and eventually they lose their competitive advantage," comments Theresa Metty, senior vice president and chief procurement officer of Motorola. That was true when so many big OEMs, like Motorola and Hewlett-Packard, outsourced critical purchasing responsibility to third-party contract manufacturers in the 1990s. In the case of Motorola, the decision to outsource purchasing responsibilities to contract manufacturers was made by manufacturing. Adding insult to injury, no provision was made for protecting confidential information. As a result component prices as well as contract terms and conditions were openly shared with third parties.
If you do that, you lose one of the most valuable assets you have—your relationships with your suppliers. When components become scarce, many contract manufacturers throw the problem right back to the OEM—you figure out how to meet the customer requirements.
In this issue we explore the issue as part of the detailed story on how Hewlett Packard buys, beginning on page 30. HP now maintains control of its strategic sourcing of components used by its electronics manufacturing services or original design manufacturing partners. HP corporate purchasing negotiates contracts with its suppliers and then sells them to the EMS and ODM providers. Actual prices are masked as HP sells them at higher levels than it paid. HP is the IT industry's largest buyer of memory, microprocessors, Windows software, hard disk drives, laser engines, optical disk drives and LCD panels. Why should it share that competitive advantage with its competitors?
As Jim Carbone explains in this month's cover story, HP's competitive advantage extends beyond price leverage. Buyers study historical cost-supply relationships and forecast prices based on supply scenarios. HP buyers may promise a volume commitment to a supplier in return for a price cap on a part that looks risky. Outsourcing tactical tasks for non-core products may make sense to some companies. But never give up the relationship with your supplier.
Book review: The Supply-Based Advantage
06/30/2009Dean Foods names Holcomb CPO
12/19/2006Second annual Top CPOs audiocast series
07/05/2007
Now Playing: 