I hope that you have enjoyed the article “A 12-Point Supply Market Analysis Checklist.”
In the article, I refer to “Dominick’s Sourcing See-Saw.” Well, in this post, I will reveal what it is and how it works.
Think of a see-saw. Imagine two children on that see-saw: the bar being perfectly horizontal and the children suspended in the air at the exact same height.
What does that mean?
It means that the children are exactly equal in weight.
Now, imagine yourself on one end of the see-saw. And imagine that I randomly select one of your co-workers in your procurement department to sit on the other end. What are the chances that the see-saw would be in perfect balance?
Probably not very good, right?
And such is the case between buyers and suppliers. Rarely do each have perfectly equal leverage in a sourcing project or negotiation. It is likely that one will have more leverage; maybe a little more, maybe a lot more, but more regardless.
When you, as a buyer, have way more leverage than a supplier, you can use pretty aggressive negotiation tactics, like saying “If you don’t improve your offer to my satisfaction, I’ll buy the product or service from someone else.” But a tactic like that won’t work so well if the supplier has way more leverage than you, now, will it?
Therefore, you need to use different sourcing and negotiation strategies based on the supply market conditions. And how do you assess supply market conditions?
Well, you use the aforementioned checklist in conjunction with Dominick’s Sourcing See-Saw, illustrated below. These tools will help you determine whether your organization or the supply base has more leverage – in other words, you’ll determine to which side the See-Saw is leaning – so that you can select your sourcing and negotiation strategy and tactics accordingly.