How much should you squeeze suppliers in a relationship-based environment?
At a presentation to the Purchasing Management Association of Boston this past Monday night, I spent about 45 minutes speaking passionately about the importance of supplier relationships and how good relationships go a long way in improving supplier and supply chain performance. The attendees seemed especially interested in the concepts of trust, communication and courtesy as they relate to supplier performance. As one of my old bosses used to say you can disagree without being disagreeable. And we eventually talked about the importance of negotiation, even in a relationship-based environment. Negotiation isn’t just for adversarial relationships, of course.But there was one especially interesting question offered from the audience and it was telling in its simplicity: “In a relationship-based environment should I continue to squeeze suppliers on price if I know there is more to gain from them?” The question brought a knowing chuckle and nod from the audience and a non-committal answer from me about keeping the supplier whole while rationalizing and understanding the pressure from above to get the most you can from suppliers.
But the question continued to gnaw at me on the ride home so, I’d like to put the question to you, our readers, directly to get a broader perspective: “In a relationship-based supplier management environment should I continue to squeeze suppliers on price if I know there is more to gain from them?”
What do you think?
Greg commented:
Speaking as a supplier who gets squeezed, I would offer that by squeezing on price, you are most likely missing out on a much larger opportunity that collaboration would achieve. Every supplier knows in this environment that pricing must be competitive, but there are things you can achieve through collaboration that can be mutually beneficial. As one poster put it, we're all in the same boat together, there are things you can do as a buyer that lower my cost to serve you, which enables me to offer a better price at the same margin.
Reny Landstra commented:
In a relationship-based environment "partners" have the responsibility towards lowest total costs. It is our mutual interest to ensure that our relationship remains profitable. Functionally you're obligezed to "squeeze" your suppliers, how you deal with it is more important. Integrity, respect and long term objectives are your guide.
Jorge Espino commented:
Competition nowadays is based on which supply chain is more efficient; therefore a company should always challenge its supply base to improve in order to survive. Nonetheless there should be a greater level of collaboration among firms and overcome the typical dversarial relationship syndrome.
Marcus Keyes commented:
I congratulate Richard on his views on Supplier Relationships - which according to me is oft ignored. In fact today many eSourcing tools offer features by which Buyers and Suppliers can connect easily, enabling better coordination. Andrew Bartolini from Aberdeen Group has covered this in his research and also will speak live on this and many other topics on the 2nd of December. Be sure to attend...
Lara commented:
Richard, this is a great topic, thank you. If we think about supplier relationships in the context of recession, we recognize that we are all in the same boat. Organic growth is down so a major focus area is expense reduction. Let's assume our suppliers are pursuing their own reductions with their suppliers and thus, anticipate reduced revenues, too.
I agree with Shelia, there are things more "recession proof" than today's spend. Customers can offer longer commitments, broader services and access to executive teams. All valuable currency in today's environment. So I say go ahead and squeeze.
Paul commented:
If you know they have more to give, why not go for it? If you don't, then you are doing a disservice to your employer - the one that pays you to minimize costs.
Sheila commented:
Richard, this is a great question. I agree with Stan that it depends on leverage. But, one tactic would be to ask "what can I give the supplier that would be valuable to him/her in exchange for squeezing more?" Sometimes different terms, better access to new product development, or a longer commitment will help that supplier take costs out of his or her operations that he or she can then pass to you. The difference is that suppliers appreciate the effort, and if the supplier ever has the upper hand, you'll be treated more favorably than someone who continually squeezed without offering anything in return.
Stan commented:
Of course it depends on leverage, but there is a point where suppliers will tire of dealing with you if you keep squeezing.
With that said, trust, commmunication and courtesy do not = friendship. Your interests are diametrically opposed, and you should do what you can to rationally squeeze them as much as you can without damaging the long term strategic relationship. Rational self-interest, as I've heard it put. Otherwise you are just leaving money on the table.
