Unfortunately for supply and procurement professionals, many suppliers are not only accepting this adage but applying it: that is, they are evaluating their customer base (you, the buyer) and deciding which customers are profitable and easy to do business with. The rest are targets for elimination. Yes, suppliers are firing buyers. Ask yourself this honest question: If my suppliers could sell their products or services to another buyer at equal or better pricing than I'm paying, would they fire me?
Does this sound farfetched? In a normal buyer's marketplace, where capacity exceeds demand, this is an unrealistic situation. We are, however, not in a normal buyer's marketplace; we are in a global seller's marketplace, where demand exceeds capacity.
Innovative suppliers are beginning to practice buyers’ segmentation analyses. Buyers are evaluated not only on their direct contribution to overall profits but also the qualitative aspects of the relationship. Here are some of the descriptive statements used to describe and segment buyers: "easy to do business with," "provides realistic forecasts and expectations of demand," "stands by their commitment," "does not force me to correct their problems," and the granddaddy of all statements, “pays their bills on time." These qualitative descriptions were in the past merely the informal complaints of a frustrated sales force or order entry department. Now the costs associated with these negative characteristics are factored into another valuation of the buyer as profitable, marginal, or unprofitable.
The same balanced scorecard we have used for the past decades to evaluate the qualitative and quantitative performances of our suppliers is now being used to evaluate the buyers.
In a landmark study, Professors James Heskett, Earl Sasser, and Leonard Schlesinger published the book The Service Profit Chain (New York: Free Press, 1997). In their research, they characterized or segmented buyers into a number of categories: cheerleaders or coaches, those buyers who actively promote and encourage the purchase of your product or service; seekers, those buyers who are constantly searching for the best value without long-term commitment or loyalty; captive, those buyers who do not have an option and must buy your products and services; apathetic, those buyers who buy any product and service, usually the low-priced buyers; and, the worst category of all, the naysayers, those buyers who are constantly degrading your reputation either actively or passively.
If we were to ask your top 25 suppliers, what would be the consistent feedback regarding your relationship with those suppliers? The risk is in a seller's marketplace (where the seller actually does have options for alternative customers); in a seller’s marketplace, how you are perceived is important.
Within supply and procurement management, we have long supported the concept of supplier relationship management (SRM). In essence, SRM is an approach to establish a long-term realistic and mutually beneficial working relationship with the supplier. The key components of SRM are:
- Seamless communications—Timely and accurate information is shared.
- Collaborative efforts—The buyer and supplier create the solution.
- Mutual benefits—The supplier also benefits from improvements.
- Integration—Suppliers are part of the buyer’s resources.
- Supplier segmentation—Suppliers are valued for their unique contribution.
Viewed from the supplier's perspective, SRM means an SRM-motivated buyer is profitable and advantageous to have a long-term working relationship.
Suppliers always know more than the buyers, and now they have increased power. In today’s marketplace, you cannot afford to be viewed as expendable by your key suppliers. What are you doing to prevent that label?