Are Your Supplier Relationships Too Subjective?

It is often eye opening when companies begin to analyze spend in a new Indirect category.

Increased visibility can uncover unexpected issues and wasteful practices that cost millions in unnecessary expenses. The task of correcting the poor habits can be too daunting for leadership to invest time in, and the mess gets swept back under the rug. However, with a little analysis, many of the problems begin to stick out like a sore thumb. Once the big-ticket issues are known, concentration on those issues alone can mean a rewarding return on investment for time put in.

Perhaps one of the largest of these obvious and easily addressable issues are supplier relationships that have become too subjective in nature. Of course, the supplier should be viewed as a partner working towards a mutual benefit. As a Procurement manager, a strong relationship is desirable for ease of communication and simple contract negotiations, as well. 

However, the relationship can digress into a friendship instead of a professional relationship.

The use of digress is intentional, and not meant to sound wholly negative. A professional friendship is acceptable but should still require the supplier to remain competitive in the current marketplace. This relationship can sidestep negotiations and move right to awarding the supplier business when quantitative and qualitative benefits are few and far between. This happens all the way up and down the chain of command, especially in Indirect categories and large organizations. A buyer in one region may “like a guy” with a company, so the supplier gets all the business. Meanwhile, the possibility for a national contract, or online ordering system, that could save a large amount of time and money is present with another supplier.

Luckily, the fix is simple in theory and still relatively simple in practice. 

The goal should be to judge all suppliers objectively, first. Your organizations requirements need to be defined and agreed upon prior to awarding business to any supplier. This could show your current suppliers are the best choice for your organization. Although, I have seen the opposite in most situations concerning a new, never-before addressed Indirect category. Based on the new objective requirements, reasons should be found of why NOT to go to market. If the friendly incumbent supplier does not stack up against your new pre-defined objective standards, go to market and take advantage of the new eager suppliers waiting to do business.

To decide what objective standards you should expect from your suppliers, asses the current market. Ask what alternative products, services, or processes are available in comparison. Is it a good time to go to market with the current market conditions? If the market is weak or the natural cyclical nature of some categories is not on your side, speaking to your incumbent suppliers is always an option. Discuss your new objective standards for your business. Often, that is itself enough to get immediate benefits and savings.