Supplier Size: It Matters
PurchTips - Edition # 76 May 31, 2005
By Charles Dominick, C.P.M., SPSM
Does Your Selection Criteria Include Supplier Size?
You need a supplier who will stay in business on a long-term basis. You need a supplier whose capabilities are scalable, so your delivery, service, or quality will not suffer if your volume increases.
But you also need a supplier who values your business. When you're unhappy with the supplier or you need special assistance, you need your supplier to put forth extraordinary effort towards satisfying you.
Selecting a supplier of the "right" size - relative to your spend with them - can meet all of these needs.
Generally, if your business represents less than 1% of a supplier's annual sales, you won't be extremely valuable to them. So you may not get the service or attention you may need at critical moments.
Conversely, if your business represents over 10% of a supplier's annual sales, that supplier may be too dependent on you. Decreases in your volume could force them to lay off portions of their workforce or even go out of business. That would negatively impact your ability to satisfy your requirements when regular demand patterns are restored. Additionally, volume spikes could clog the supplier's operations.
When comparing supplier proposals, note the percentage of each supplier's sales that would be comprised by your business. Assign one of three designations to your evaluation sheet to represent that percentage:
<1% 1 - 10% >10%
If the highest ranking supplier is assigned either the "<1%" or the ">10%" designation, reconsider how the supplier's size may negatively affect the performance you get out of that supplier during your relationship.
It may or may not change your decision. But it is something to be considered. Personalize this process: Think about your own attentive and inattentive suppliers. Calculate the percentage of their sales that is comprised by your spend. Then adjust the percentage thresholds (1% and 10%) to reflect the correlation between supplier size and attentiveness in your experience.
Spotlight On Professional Development Opportunities
Have your suppliers figured out exactly how to neutralize your negotiation tactics? Most savvy sellers go through negotiation training at least yearly. Unless you've been just as diligent at improving your negotiation skills, your chances of getting the best deals from your suppliers are very slim.
Unfortunately, many purchasers feel that their past negotiation experience will serve them well today. Guess what? Sellers have figured out how to thwart yesterday's purchasing negotiation tactics. And much has changed. Supplier-friendly win-win negotiation is the new standard. You have less preparation time than ever. You may even get lured into using the convenient, but often ineffective, method of negotiating by email. If it seems like you're at a disadvantage, you are!
But you can quickly get the modern negotiation skills you need to get the best deals in today's environment. Our online class "Powerful Negotiation For Successful Buying" will teach you the latest and greatest negotiation techniques so that even the most savvy sellers will give you the best deals possible.
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Successful Buying" at a 10% discount! To claim this discount, you must enroll TODAY ONLY at
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Remember, this discount offer expires today. The above Web page will be removed on June 1. So don't wait another minute. Enroll now and modernize your negotiation skills!
Valuable Purchasing Links!
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