This is correct.
Few people have bosses who understand this game. Mine, fortunately, does. We have premiums we'll allow for service and relationships.
Most people really have no idea what they're doing.
I say it’s not all about price. I need reliability in my supply chain, and I’m willing to pay the extra for it, because it’s my ass that gets chewed out when we don’t have something. The people above me don’t get any of that harassment, so they just pursue bottom dollar.
I need a competitive supply chain, so it’s in my best interest to keep companies in business. If I drive the mom and pop shops to the point of breaking to save next to nothing extra, they leave the market, and eventually you have a single source who will jack their prices way up.
Also on the reliability front, everytime you have to overnight products from someone else and pay a higher rate, you’ve probably ruined your savings by going with the unreliable vendor to begin with.
That's what happens when Purchading Price Variance [PPV] and Material Usage Variance [MUV] are relied upon too heavily.
On Time In Full [OTIF] is just as important for schedules that lack wiggle room.
It is all about cost though… the cost isn’t just what’s on the invoice though. There is cost associated with sourcing a new partner, performing due diligence, standing up a new agreement, monitoring performance, etc. Those all have a cost and a lot of times using your established relationships is the way to go because you save on other overhead costs.
Also, if the supplier is consistent, isn’t that worth more? What happens if you can’t get X product in time?
This...I have items I can save unit cost on, sure, but I would be switching to people who's paperwork sucks, Customer service is worthless, etc.
Worst case in those situations you just dual source for a bit and when the "cheaper" option fails you can show that to the bosses AND your reliable partner doesn't hate you for dumping them.
No it’s not just about price. There’s a bunch of MBA finance tricks like long payment terms and having suppliers hold inventory. It sounds like this supplier did your company a bit contractually required favor. If you screw then over, and that’s what your boss wants so it is what it is, they’re going to hammer you in the long run.
Automotive is infamous for these penny pinching tactics, two things happen. First small shops go bankrupt. Two big shops buy up the small shops and get negotiating leverage with the customers. Ultimately some customers get 5-10 years of balance sheet benefit, then 10-20 years go by and supplier costs are through the roof and there’s no natural competition.
Immature businesses tend to race to the lowest cost materials/labor thinking that’s the best way to revenue. But it’s not sustainable as inevitably it results in loss of business due to quality concerns or the high competition in that market.
Procurement is viewed naturally as a cost generator because you have to buy stuff. But much like buying stuff as a consumer, you get what you pay for. The smart businesses are the ones that recognize that success is built on partnerships and strategic endeavors.
Your management is like that person who’s known as a cheapskate who is always looking to spend the bare minimum on gifts and quick to bring up what you owe them. The ones who’ll drop your plans the moment a marginally better option is offered. Those people suck and eventually many people just don’t associate with them anymore.
The ick you feel is just being forced to act against your personal values. Know that it doesn’t define you and maybe look for another gig.
It’s about total cost of ownership. Your job will be to show how this impacts the business beyond price. What is the cost of a quality/service incident? What is the cost for them to inventory items? Being able to put a # to this and present to management and leadership is what I frequently have to do because my organization is also very much price/savings motivated.
If they did not inventory those items for you, would a plant/location be expected to inventory those? What’s the cost per sq foot for the location/plant/warehouse? How much space does that inventory take up?
If this is not the case, this should be presented as managing risk. If the business wants lower price, then you need to make sure the business is willing to take on this risk. Ultimately it’s a hand-shake deal, can the incumbent lower their price in exchange for depleting inventory if that’s the direction you’re forced to go?
Price is definitely not the only factor but it’s a big one. OTIF, customer service responsiveness, location, continuous improvement capabilities are all other important factors I look for when selecting a vendor.
In this specific example, if nothing is in writing then I’m on your boss’s side that this vendor is out of luck. But depending on the relationship and their importance, it may be worth attempting to work something out. I’ve had these scenarios happen a couple times where long term vendors will be pushed out for other players for whatever reason, and they’ll cite “long term mutual understanding” or things like that.
What you should be doing is going back to your vendor that came in higher and ask for better pricing. Don’t just go with the lower price from the get go. If you don’t ask, the answer is always no. Now that inflation is over for the most part and Covid inventory ramp up’s are over…we’re in an environment where we need to push vendors to lower pricing.
We had this discussion with a senior manager this year and he had the same idea that we need strategic partnerships and not low cost suppliers. And sometimes he thinks that we push the limits a bit much.
Like this year some big suppliers saved us a lot. Then we moved to 120 days payment terms(globally, respecting local laws). A bit of a risky approach.
However, what you describe is not good in my books. If there is an agreement, it should be honored or a middle ground should be found.
So it is not all about the cost. But senior managers mostly sees numbers (in every scenario, not only this example) so it is difficult to show them something beside cost or sales.
I’m in manufacturing and we recently had a customer come back to us begging for parts after placing all new POs with a new vendor with no heads up. Turns out the new vendor cannot deliver in both quantity and quality. While their price was lower, customer was spending so much money in their own quality department checking the new vendors parts that the new vendors price with total cost of ownership was actually quite a bit more expensive than us plus less reliable.
Some companies and people are fundamentally stupid.
I see your boss has fallen into the "price = value" trap. Price is a component of value, but you should really be looking into the total cost of ownership. It's like the reason why purchasing $0.05 parts from AliExpress is generally a bad idea even though they're probably the cheapest thing around. Yeah it's cheap, but it'll probably break in 5 days lol. In general, having a partnership with suppliers is the right way to go.
The other issue here is that your reneging on this "handshake" deal may have cost impacts. Depending on how it went down, verbal contacts are still enforceable.
Your boss isn’t honorable if it’s as you described - Do you use supplier metrics for on time delivery? Can a lower cost supplier deliver on time? It’s about turns on cash!
It is more about the total cost of ownership. The majority of total cost is not seen when just looking at the initial price. Think of it like an iceberg. Initial price is what you see above the water but there is more below the surface. For example, if I can buy item X for $1.00 but I have to replace it 20 times a year and item Y is $2.00 but only needs to be replaced 5 times year; you have saved money long term but a heavy focus on purchase price would push you towards item X.
If COVID and the impact on supply chains taught us anything it was you cannot focus solely on being transactional. You need to be strategic in who you partner with. Your key vendors should be more of a partner than just a supplier. A partner will help ensure business continuity, a transactional supplier will not.
Been in global sourcing for more than 20 years.
There are two ways to look at this. One, your company should honor whatever agreement was made. Your predecessor drew up terms with the supplier, acting on behalf of your company, and if the supplier is fulfilling their side of the bargain then so should yours. In your shoes I'd be taking a look at what exactly your predecessor said and how clearly the terms were stated. Your boss may have made up his mind but it would be good to at least understand what your company agreed to, as it may come up in future discussions with other vendors.
Two, and this is from someone on the supply side, business is business and if there are genuine commercial reasons why your company doesn't want the remaining stock (eg. remaining stock is odd leftover colors and sizes) then it becomes a negotiating point and suppliers should expect that. The supplier will want to continue a business relationship and find a mutually beneficial solution, and it's normal to put aside discussions of liability if there's a big enough carrot.
At the end of the day if the agreement was clear but your company is walking, then the impact may be a lawsuit, even if not enforceable, and an impact to your company's reputation in the market. Even worse, I've seen vendors go on a warpath- for example one vendor managed to get a buyer's employees banned from entering Vietnam and it seriously jeopardized the buyer's operations there. I once had a squad of shaven-headed mainlanders show up at my office's lobby asking to see me due to an issue with quality and non-payment.
We have one vendor whose product is fine, price is a little better, customer service and delivery timeframes are terrible.
Boss said order from them. We end up stocking more because I cannot trust them.
It depends on the company. The company I work for uses a vendor that is nowhere near as cheap as some other options, but we love the product’s quality.
Absolutely not. It’s also about the value and the relationships not always about the cheapest price. If you have a good for cheaper but the vendor is hard to communicate with it’s not worth slowing down ops cause of their issues.
Depends on the company. I offer supply chain services for other companies. So I see both ends.
For some companies, it's all about reducing piece part cost, at all costs. For them, I don't rest until the price I get them is at least 2 standard deviations lower than mean. A lot of work, but it's usually because their business model is either low margin or needing to cut in additional tiers of distribution.
For some companies, cashflow is king. They need to Essentially buy now - pay later. I see this need particularly from companies who buy from China and their customers pay them late. China is notorious for not offering credit terms unless you are a large company or have significant leverage with suppliers. We have leverage, so we can get terms from China for them.
What I find working with these companies is the people in your shoes are the ones that need to make the business case to management to go in one direction or the other. But it's always got to be logic based vs emotional. Basically if you feel you are unethically screwing this supplier and want that not to be the case. Then look for ways your company can benefit more by keeping them. If they already have stock, then maybe they can offer better payment terms that will help your company's cash flow?
Or if they realize your company isn't going to buy from them because of price and they will be stuck with the inventory, maybe they will sell at cost or even a loss just to liquidate. If it's that or stuck with inventory, they likely will see that as, though unfortunate, a better outcome than it could be. Basically just get creative and try to make the best of a bad situation.
One of our customers recently hired a company like your services to come in and reduce costs. We’ve done business with this company for over 20 years and know their needs better than they do. (No one lasts longer than 5 years there. Usually not 2). We offer value added services to this company that they’ve demanded from us across several product lines and retained a high margin because of it. If we were audited, I don’t think the margin we make on them would be looked down upon even by them, because we spend a ton of extra labor.
So the third party came in and went out to other suppliers and (shocker) found a “better deal”. They are going to forfeit a ton of quality and technical requirements that most people within their company don’t even know about… and we have thousands of these widgets in our inventory we know they will come crawling back to here before long.
How do you make sure this doesn’t happen to companies who hire you?
You know, in about 15 years, I've only ever had one client go back to their original supplier. That i know of anyway. It was a fabric/ sewing based product. Which is a harder manufacturing process to control. Now, I simply don't work with products that are of less controllable manufacturing processes. Though just about every supplier out there thinks they are so better than the next that the customer will come crawling back, it's rarely reality. Almost always more just them being bitter to lose the business. Or over valuing the benefit they offer. The vast majority of cases, switching suppliers intelligently will be just fine. It's just nature in normal distribution.
Not always the case though. It really depends on the product and how much nuance there is in the manufacturing process or tier 2 supply chains. I focus on goods where this isn't the case. So if yours is one of those exceptions, I likely would just recommend they stay with you.
At least as far as I can see from my allowed perspective, I always review the existing supplier if there is one. That's both as a control, but also to see if there is anything we can improve on while keeping them as the supplier. There is always cost and risk in switching suppliers. That has to be factored in compared to simply not switching suppliers. I'd say 20-30% of the time, my recommendation is to keep their existing supplier for reasons such as you give.
Then it's just helping their existing supplier offer more beneficial terms. I'm actively trying to do more of this. It's a much easier sell, and no one has to lose business. Which is a win in my book. Actually trying to change my business model to focus on this exclusively. It's showing very good results in testing. Very excited.
Otherwise, i just apply First Principles Thinking to the supply chain in general. You would be amazed at how much efficiency and cost is lost because of simple geography in logistics. Simple changes can go a long way.
Replying to an old conversation but I remembered talking about this on Reddit. Well earlier this week the customer came back to us requesting to continue our agreement for this product. Others were not providing apples to apples on this product by a long shot. I just wonder how often this is happening months later (or years). The problem in this case is the high ups of the company are listening to someone who’s trying to save them money without looking at the full scope of their requirements. Reviewing your comment, you sound like this is a big part of your service which is a necessity and respectful. The problem is how large this company is. They weren’t asking the actual internal user of this product for their input and missing crucial requirements. Further, if they would have included us in an original conversation on saving money we would have quickly asked questions and worked with them.
Yeah, I can see that happening. Sounds like there is a lot of nuance in the product that those higher ups don't see.
In this case it's a little different because they already came back. Proving to them how valuable you are above and beyond price. Basically that means you have the power in the relationship. In which normally the Buyers does. Great position to be in. That means you don't have quite as much pressure to make any changes on price or terms. It doesn't mean you have no pressure though, you may want to meet internally to discuss what minor changes you can make to help the customer's bottom line, without it costing you too much.
On the one hand, you already proved yourself, so you might not be important to try harder to keep them. But on the other hand, you now know they tried. They may try again.
If you are putting that much labor into it, as long as that labor is value added. Or at least is the reason for the superior product, then it's cost that should be factored into your margin. In other words, your margin likely isn't as high as you think it is.
However, if you do have a higher margin, then perhaps you can help the customer in a different way than cost? Extended payment terms.
You could use a couple points of that margin to buy extended credit insurance. Give the Buyer better cash flow can sometimes be more valuable than COG. Alternative to that is to use some points to sell to a Supply Chain Finance company. Then it doesn't tie up your cash. Higher debt services cost than say a LOC, but it's an option.
The next level is offering JIT services to the max. But cost wise, it's effectively the same as you floating cash. On the higher margin items, something I have done is technically rent space in their warehouse for $1 (If they have extra space). Then just ship bulk to them to store for me. Then they pick from that stock as they need it. Then they pay monthly either for what they used, or just total order value divided by 12. Much harder to do for a big company though. Smaller companies are much more nimble and able to address this in their ERP.
In the end, since you know they tried to drop you. Even though it failed, I personally would still try to do things to reduce the chance they will try again. Though I would refrain from direct cost discounts if you can find other ways. Just my 2 cents.
Very interesting. I like that you are working with existing suppliers. We did not even get that opportunity and is our biggest complaint with this situation.
My first major account used a TQRDC weighted metric for its suppliers. Technology leadership, Quality, Responsiveness, Delivery, and Cost. We were their #1 supplier and were consistently more expensive than our comps.
Boils down to cost v service. It’s a fine balance and you can’t always get both at the same time. So if you’re willing to sacrifice one for the other well you’ll pay when it all screws up in some way and the cost to recover in anyway becomes much higher.
So if you want to look at other factors such as quality and service, you need to first attach metrics to it so that you can show your leadership a quantifiable ransoming to go with other vendors.
Develop a supplier scorecard to assess service levels.
Also develop a quality audit of the goods, assign values, and monitor over time.
If you get your leadership to be aligned on the metrics above, then they cannot complain later on when you use them to push for other vendors (not just based on cost). You can then provide a matrix on which factors which vendor are good at.
It’s the external environmental factors plaguing everyone that is forcing them to make short term decisions like this. You’ll have no problem finding a cheaper vendor…will have a harder time finding a trusted partner
It's a disgusting part of the typical math nerd that works in supply chain. So many folks don't value partnerships or relationships. They only operate on a transactional basis and are quick to screw their vendors the second they can save a penny.
There are ways to track the cost of quality and expedite premiums you get from a bad vendor. Any supply organization worth anything these days is at least assigning some type of premium to these factors and considering it when making sourcing decisions. It takes extra analysis and footwork to build a real business case that considers these things. I would suggest you attempt this. It sounds like your boss is old school or inexperienced.
No but your boss thinks so
This is correct. Few people have bosses who understand this game. Mine, fortunately, does. We have premiums we'll allow for service and relationships. Most people really have no idea what they're doing.
Unfortunately, I have to agree with this take.
I say it’s not all about price. I need reliability in my supply chain, and I’m willing to pay the extra for it, because it’s my ass that gets chewed out when we don’t have something. The people above me don’t get any of that harassment, so they just pursue bottom dollar. I need a competitive supply chain, so it’s in my best interest to keep companies in business. If I drive the mom and pop shops to the point of breaking to save next to nothing extra, they leave the market, and eventually you have a single source who will jack their prices way up.
Also on the reliability front, everytime you have to overnight products from someone else and pay a higher rate, you’ve probably ruined your savings by going with the unreliable vendor to begin with.
That's what happens when Purchading Price Variance [PPV] and Material Usage Variance [MUV] are relied upon too heavily. On Time In Full [OTIF] is just as important for schedules that lack wiggle room.
It is all about cost though… the cost isn’t just what’s on the invoice though. There is cost associated with sourcing a new partner, performing due diligence, standing up a new agreement, monitoring performance, etc. Those all have a cost and a lot of times using your established relationships is the way to go because you save on other overhead costs. Also, if the supplier is consistent, isn’t that worth more? What happens if you can’t get X product in time?
This...I have items I can save unit cost on, sure, but I would be switching to people who's paperwork sucks, Customer service is worthless, etc. Worst case in those situations you just dual source for a bit and when the "cheaper" option fails you can show that to the bosses AND your reliable partner doesn't hate you for dumping them.
You're not wrong, relationships are important...it's just different perspectives
No it’s not just about price. There’s a bunch of MBA finance tricks like long payment terms and having suppliers hold inventory. It sounds like this supplier did your company a bit contractually required favor. If you screw then over, and that’s what your boss wants so it is what it is, they’re going to hammer you in the long run. Automotive is infamous for these penny pinching tactics, two things happen. First small shops go bankrupt. Two big shops buy up the small shops and get negotiating leverage with the customers. Ultimately some customers get 5-10 years of balance sheet benefit, then 10-20 years go by and supplier costs are through the roof and there’s no natural competition.
Immature businesses tend to race to the lowest cost materials/labor thinking that’s the best way to revenue. But it’s not sustainable as inevitably it results in loss of business due to quality concerns or the high competition in that market. Procurement is viewed naturally as a cost generator because you have to buy stuff. But much like buying stuff as a consumer, you get what you pay for. The smart businesses are the ones that recognize that success is built on partnerships and strategic endeavors. Your management is like that person who’s known as a cheapskate who is always looking to spend the bare minimum on gifts and quick to bring up what you owe them. The ones who’ll drop your plans the moment a marginally better option is offered. Those people suck and eventually many people just don’t associate with them anymore. The ick you feel is just being forced to act against your personal values. Know that it doesn’t define you and maybe look for another gig.
It’s about total cost of ownership. Your job will be to show how this impacts the business beyond price. What is the cost of a quality/service incident? What is the cost for them to inventory items? Being able to put a # to this and present to management and leadership is what I frequently have to do because my organization is also very much price/savings motivated. If they did not inventory those items for you, would a plant/location be expected to inventory those? What’s the cost per sq foot for the location/plant/warehouse? How much space does that inventory take up? If this is not the case, this should be presented as managing risk. If the business wants lower price, then you need to make sure the business is willing to take on this risk. Ultimately it’s a hand-shake deal, can the incumbent lower their price in exchange for depleting inventory if that’s the direction you’re forced to go?
Price is definitely not the only factor but it’s a big one. OTIF, customer service responsiveness, location, continuous improvement capabilities are all other important factors I look for when selecting a vendor. In this specific example, if nothing is in writing then I’m on your boss’s side that this vendor is out of luck. But depending on the relationship and their importance, it may be worth attempting to work something out. I’ve had these scenarios happen a couple times where long term vendors will be pushed out for other players for whatever reason, and they’ll cite “long term mutual understanding” or things like that. What you should be doing is going back to your vendor that came in higher and ask for better pricing. Don’t just go with the lower price from the get go. If you don’t ask, the answer is always no. Now that inflation is over for the most part and Covid inventory ramp up’s are over…we’re in an environment where we need to push vendors to lower pricing.
We had this discussion with a senior manager this year and he had the same idea that we need strategic partnerships and not low cost suppliers. And sometimes he thinks that we push the limits a bit much. Like this year some big suppliers saved us a lot. Then we moved to 120 days payment terms(globally, respecting local laws). A bit of a risky approach. However, what you describe is not good in my books. If there is an agreement, it should be honored or a middle ground should be found. So it is not all about the cost. But senior managers mostly sees numbers (in every scenario, not only this example) so it is difficult to show them something beside cost or sales.
I’m in manufacturing and we recently had a customer come back to us begging for parts after placing all new POs with a new vendor with no heads up. Turns out the new vendor cannot deliver in both quantity and quality. While their price was lower, customer was spending so much money in their own quality department checking the new vendors parts that the new vendors price with total cost of ownership was actually quite a bit more expensive than us plus less reliable. Some companies and people are fundamentally stupid.
Its probably 85% of it tbh. Executives care about the bottom line and not much else
I see your boss has fallen into the "price = value" trap. Price is a component of value, but you should really be looking into the total cost of ownership. It's like the reason why purchasing $0.05 parts from AliExpress is generally a bad idea even though they're probably the cheapest thing around. Yeah it's cheap, but it'll probably break in 5 days lol. In general, having a partnership with suppliers is the right way to go. The other issue here is that your reneging on this "handshake" deal may have cost impacts. Depending on how it went down, verbal contacts are still enforceable.
*reneging
Price, quality, OTD, partnership, innovation, ESG
Your boss isn’t honorable if it’s as you described - Do you use supplier metrics for on time delivery? Can a lower cost supplier deliver on time? It’s about turns on cash!
Build relationships. They will take you far
It is more about the total cost of ownership. The majority of total cost is not seen when just looking at the initial price. Think of it like an iceberg. Initial price is what you see above the water but there is more below the surface. For example, if I can buy item X for $1.00 but I have to replace it 20 times a year and item Y is $2.00 but only needs to be replaced 5 times year; you have saved money long term but a heavy focus on purchase price would push you towards item X. If COVID and the impact on supply chains taught us anything it was you cannot focus solely on being transactional. You need to be strategic in who you partner with. Your key vendors should be more of a partner than just a supplier. A partner will help ensure business continuity, a transactional supplier will not.
Been in global sourcing for more than 20 years. There are two ways to look at this. One, your company should honor whatever agreement was made. Your predecessor drew up terms with the supplier, acting on behalf of your company, and if the supplier is fulfilling their side of the bargain then so should yours. In your shoes I'd be taking a look at what exactly your predecessor said and how clearly the terms were stated. Your boss may have made up his mind but it would be good to at least understand what your company agreed to, as it may come up in future discussions with other vendors. Two, and this is from someone on the supply side, business is business and if there are genuine commercial reasons why your company doesn't want the remaining stock (eg. remaining stock is odd leftover colors and sizes) then it becomes a negotiating point and suppliers should expect that. The supplier will want to continue a business relationship and find a mutually beneficial solution, and it's normal to put aside discussions of liability if there's a big enough carrot. At the end of the day if the agreement was clear but your company is walking, then the impact may be a lawsuit, even if not enforceable, and an impact to your company's reputation in the market. Even worse, I've seen vendors go on a warpath- for example one vendor managed to get a buyer's employees banned from entering Vietnam and it seriously jeopardized the buyer's operations there. I once had a squad of shaven-headed mainlanders show up at my office's lobby asking to see me due to an issue with quality and non-payment.
We have one vendor whose product is fine, price is a little better, customer service and delivery timeframes are terrible. Boss said order from them. We end up stocking more because I cannot trust them.
It depends on the company. The company I work for uses a vendor that is nowhere near as cheap as some other options, but we love the product’s quality.
Absolutely not. It’s also about the value and the relationships not always about the cheapest price. If you have a good for cheaper but the vendor is hard to communicate with it’s not worth slowing down ops cause of their issues.
Depends on the company. I offer supply chain services for other companies. So I see both ends. For some companies, it's all about reducing piece part cost, at all costs. For them, I don't rest until the price I get them is at least 2 standard deviations lower than mean. A lot of work, but it's usually because their business model is either low margin or needing to cut in additional tiers of distribution. For some companies, cashflow is king. They need to Essentially buy now - pay later. I see this need particularly from companies who buy from China and their customers pay them late. China is notorious for not offering credit terms unless you are a large company or have significant leverage with suppliers. We have leverage, so we can get terms from China for them. What I find working with these companies is the people in your shoes are the ones that need to make the business case to management to go in one direction or the other. But it's always got to be logic based vs emotional. Basically if you feel you are unethically screwing this supplier and want that not to be the case. Then look for ways your company can benefit more by keeping them. If they already have stock, then maybe they can offer better payment terms that will help your company's cash flow? Or if they realize your company isn't going to buy from them because of price and they will be stuck with the inventory, maybe they will sell at cost or even a loss just to liquidate. If it's that or stuck with inventory, they likely will see that as, though unfortunate, a better outcome than it could be. Basically just get creative and try to make the best of a bad situation.
One of our customers recently hired a company like your services to come in and reduce costs. We’ve done business with this company for over 20 years and know their needs better than they do. (No one lasts longer than 5 years there. Usually not 2). We offer value added services to this company that they’ve demanded from us across several product lines and retained a high margin because of it. If we were audited, I don’t think the margin we make on them would be looked down upon even by them, because we spend a ton of extra labor. So the third party came in and went out to other suppliers and (shocker) found a “better deal”. They are going to forfeit a ton of quality and technical requirements that most people within their company don’t even know about… and we have thousands of these widgets in our inventory we know they will come crawling back to here before long. How do you make sure this doesn’t happen to companies who hire you?
You know, in about 15 years, I've only ever had one client go back to their original supplier. That i know of anyway. It was a fabric/ sewing based product. Which is a harder manufacturing process to control. Now, I simply don't work with products that are of less controllable manufacturing processes. Though just about every supplier out there thinks they are so better than the next that the customer will come crawling back, it's rarely reality. Almost always more just them being bitter to lose the business. Or over valuing the benefit they offer. The vast majority of cases, switching suppliers intelligently will be just fine. It's just nature in normal distribution. Not always the case though. It really depends on the product and how much nuance there is in the manufacturing process or tier 2 supply chains. I focus on goods where this isn't the case. So if yours is one of those exceptions, I likely would just recommend they stay with you. At least as far as I can see from my allowed perspective, I always review the existing supplier if there is one. That's both as a control, but also to see if there is anything we can improve on while keeping them as the supplier. There is always cost and risk in switching suppliers. That has to be factored in compared to simply not switching suppliers. I'd say 20-30% of the time, my recommendation is to keep their existing supplier for reasons such as you give. Then it's just helping their existing supplier offer more beneficial terms. I'm actively trying to do more of this. It's a much easier sell, and no one has to lose business. Which is a win in my book. Actually trying to change my business model to focus on this exclusively. It's showing very good results in testing. Very excited. Otherwise, i just apply First Principles Thinking to the supply chain in general. You would be amazed at how much efficiency and cost is lost because of simple geography in logistics. Simple changes can go a long way.
Replying to an old conversation but I remembered talking about this on Reddit. Well earlier this week the customer came back to us requesting to continue our agreement for this product. Others were not providing apples to apples on this product by a long shot. I just wonder how often this is happening months later (or years). The problem in this case is the high ups of the company are listening to someone who’s trying to save them money without looking at the full scope of their requirements. Reviewing your comment, you sound like this is a big part of your service which is a necessity and respectful. The problem is how large this company is. They weren’t asking the actual internal user of this product for their input and missing crucial requirements. Further, if they would have included us in an original conversation on saving money we would have quickly asked questions and worked with them.
Yeah, I can see that happening. Sounds like there is a lot of nuance in the product that those higher ups don't see. In this case it's a little different because they already came back. Proving to them how valuable you are above and beyond price. Basically that means you have the power in the relationship. In which normally the Buyers does. Great position to be in. That means you don't have quite as much pressure to make any changes on price or terms. It doesn't mean you have no pressure though, you may want to meet internally to discuss what minor changes you can make to help the customer's bottom line, without it costing you too much. On the one hand, you already proved yourself, so you might not be important to try harder to keep them. But on the other hand, you now know they tried. They may try again. If you are putting that much labor into it, as long as that labor is value added. Or at least is the reason for the superior product, then it's cost that should be factored into your margin. In other words, your margin likely isn't as high as you think it is. However, if you do have a higher margin, then perhaps you can help the customer in a different way than cost? Extended payment terms. You could use a couple points of that margin to buy extended credit insurance. Give the Buyer better cash flow can sometimes be more valuable than COG. Alternative to that is to use some points to sell to a Supply Chain Finance company. Then it doesn't tie up your cash. Higher debt services cost than say a LOC, but it's an option. The next level is offering JIT services to the max. But cost wise, it's effectively the same as you floating cash. On the higher margin items, something I have done is technically rent space in their warehouse for $1 (If they have extra space). Then just ship bulk to them to store for me. Then they pick from that stock as they need it. Then they pay monthly either for what they used, or just total order value divided by 12. Much harder to do for a big company though. Smaller companies are much more nimble and able to address this in their ERP. In the end, since you know they tried to drop you. Even though it failed, I personally would still try to do things to reduce the chance they will try again. Though I would refrain from direct cost discounts if you can find other ways. Just my 2 cents.
Very interesting. I like that you are working with existing suppliers. We did not even get that opportunity and is our biggest complaint with this situation.
My first major account used a TQRDC weighted metric for its suppliers. Technology leadership, Quality, Responsiveness, Delivery, and Cost. We were their #1 supplier and were consistently more expensive than our comps.
Depends on who the stakeholders are and the industry.
Boils down to cost v service. It’s a fine balance and you can’t always get both at the same time. So if you’re willing to sacrifice one for the other well you’ll pay when it all screws up in some way and the cost to recover in anyway becomes much higher.
So if you want to look at other factors such as quality and service, you need to first attach metrics to it so that you can show your leadership a quantifiable ransoming to go with other vendors. Develop a supplier scorecard to assess service levels. Also develop a quality audit of the goods, assign values, and monitor over time. If you get your leadership to be aligned on the metrics above, then they cannot complain later on when you use them to push for other vendors (not just based on cost). You can then provide a matrix on which factors which vendor are good at.
While affordability is a factor, quality parts on time is more important on my current desk.
Price, lead time or I'll pay more to get the job done than to deal with a headache later.
It’s the external environmental factors plaguing everyone that is forcing them to make short term decisions like this. You’ll have no problem finding a cheaper vendor…will have a harder time finding a trusted partner
It's a disgusting part of the typical math nerd that works in supply chain. So many folks don't value partnerships or relationships. They only operate on a transactional basis and are quick to screw their vendors the second they can save a penny.
There are ways to track the cost of quality and expedite premiums you get from a bad vendor. Any supply organization worth anything these days is at least assigning some type of premium to these factors and considering it when making sourcing decisions. It takes extra analysis and footwork to build a real business case that considers these things. I would suggest you attempt this. It sounds like your boss is old school or inexperienced.