I hope that you have enjoyed the article “Supplier Partnerships: Your End of the Deal.”
In the article, I shared four common supplier goals and how helping your supplier achieve them will result in more cooperation from your supplier towards achieving your goals. I wanted to elaborate further on those goals here.
Supplier Goal #1: Reduce Payment Cycle – In today’s economy, this can be a challenge. If your own organization is struggling with liquidity, a strategy for coping is actually to stretch out payments to your suppliers. You are using suppliers as a defacto loan source. The problem is that suppliers may need your cash to make payroll. If they don’t make payroll, you may be shooting yourself in the foot as they may not be able to continue their operations that are necessary to actually deliver the goods or services that you ordered. But if your organization does have good cash flow, it can be a bigger lever than ever towards negotiating with your suppliers. And it can help in a macroeconomic sense by lightening the burden of the credit crunch.
Supplier Goal #2: Increase Sales – This, too, can be a double-edged sword. You may fear that as your suppliers get more business, your organization will be less of a priority of theirs. This doesn’t have to be the case. Not all customers will wave the supplier’s flag the way you do. And by being such an evangelist, you can get preferred treatment without being the biggest spender while also being a respected thought leader in the field. Take Jim Polak, the Purchasing Director at PPG. Jim is a well-known and widely respected executive. And you’ll often find his quotes in articles about Ariba, from the first “Ariba signs PPG as a customer” press release in 2003 to a recent webinar he did for them. Now, though I know some folks at Ariba and have met Mr. Polak, I’m not sure of the inner workings of their relationship. But I bet when PPG says “jump,” Ariba says “how high?”
Supplier Goal #3: Reduce Cost & Complexity – One of the great things about cross-functional team procurement negotiation is that you can ensure that the needs of everyone in the organization are met because a representative from each functional area is involved. The problem arises when these team members confuse their “needs” with their “wants.” So you may negotiate a benefit from your supplier that results in little necessary benefit to you but real cost to your supplier which is somehow passed on to you. If you can collaborate with your supplier and your internal team to determine what cost drivers are not really necessary, everyone can win.
Supplier Goal #4: Increase Reliability of Sales Forecasts – This is especially true in today’s economic environment. Senior executives are closely watching the news for some indication of where the economy is going and how it will affect their business. Many are scaling back plans or laying off workers just because of what they think might happen. Signing a deal with a supplier can alleviate some degree of uncertainty and you can be rewarded with that. And if your spend is spread out among various non-contracted suppliers today, supply base rationalization will obviously help you achieve lower prices.
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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