Doesn’t the title sound like a quixotic notion? How does one maintain exemplary relations with one’ suppliers while squeezing their profits to control one’s own costs? Do we collaborate with suppliers and retain long term relationships or do we look only at price reduction, and sever relations with whichever supplier does not meet our demands for lowering the costs? Strategically, there is no clear-cut choice between the two, because both are important and attractive options for a business and it is pragmatic to tread a middle path and balance the two options in an adept manner.
Collaborate and cut Costs too:
When customers collaborate with their suppliers and hand-hold them on improving their quality standards and streamlining their processes, there is bound to be a positive impact on the supplier’s business as the learning translates to better customer relationships and improved business for the supplier and such a supplier may be happy to cut costs when the demand comes up. But, it may not be feasible to work with all the suppliers on one’s roster in this manner. Pushing for too large a cut may have the supplier find the relationship a financial burden and decide to be distrustful and unresponsive, and produce a drop in performance.
The ideal way to balance the two approaches is obviously to keep an ear to the ground and stay aware of market prices and to not get into a rut of complacency keeping collaboration alone as the ideal.
One way to achieve lower prices without affecting the collaborative relation is to evaluate one’s suppliers on performance criteria and choose a preferred list to increase the volumes with specific suppliers, to improve the relationship and achieve cost reductions.
Customers can avoid things like:
This may seem like a surprising if not counter-intuitive stand – to tell customers how to behave with their suppliers, given that customer is the focus of all business strategy and raison d’être of the supplier’s very existence in the general scheme of things. The undeniable value addition in being the valued customer of a supplier lies in receiving the best value for money, which could easily form the crux of any customer’s business strategy without any dispute. The benefit of all process improvements and innovations achieved by the supplier would also be passed on to such valued customers rather than the hard-to-please customers.
The ultimate decision on the chosen business strategy for the customers would depend upon what customers value the most, and on whether they choose to make their suppliers feel comfortable, while delivering value at the best possible prices – or have a relationship where they do not (in varying degrees) trust each other, hide important information from each other, use belligerence and complaints to achieve their objectives, have misaligned work processes and goals, leading to a choppy if not chaotic customer-supplier relationship.
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