Earlier this year, I did a podcast with Michael Massetti, the VP of Procurement and Quality at Tekelec, as well as an article, both entitled “Skillfully Managing Supplier Relationships.” During the podcast, we discussed the concept of supplier stratification.
Massetti revealed that he stratifies his supply base into three tiers: Partners, Suppliers, and Vendors – listed in the order from most important to least important. In today’s recessionary times, I am seeing supplier stratification becoming more important.
You see, in the recent past, when suppliers would cold-call executives or procurement professionals saying they could save them money by switching their business to them, the executives or procurement professionals wouldn’t pay much heed. After all, there were more strategic priorities.
But with today’s revenues and forecasted revenues shrinking for many companies, a strategic priority has become matching expenses to revenues. In other words, “if we are selling less, we have to spend less.”
So, now those cold calls are getting more attention. And procurement professionals are finding more of these “opportunities” handed down to them for review. Unplanned cost savings is becoming mandatory.
When this happens, you need to know whether or not to act upon the savings opportunity. And supplier stratification can help make the decision easier.
Using Massetti’s labels, you probably won’t consider replacing a Partner (i.e., a supplier with whom you have an excellent, mutually profitable relationship characterized by aligned goals and minimized risk). For Suppliers (i.e., a supplier with whom you have a good working relationship but isn’t irreplaceable), you may want to learn the market pricing and consider giving your existing Supplier the opportunity to restructure their pricing or at least be a participant in a competitive bidding event. For Vendors (i.e., a supplier providing a common commodity where no real relationship exists or is necessary and there is not significant spend nor risk), you may be able to switch suppliers, avoiding the costs of bidding, and seamlessly transition to a new supplier.
So do you know which of your suppliers are irreplaceable, expendable, and somewhere in the middle?
If not, now might be the best time to start your supplier stratification program.
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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