Breaking up with suppliers is easier than you think
All supply chain managers have been in the somewhat uncomfortable position of making "the switch." That is, replacing one supplier with another. Even if the supplier shuffle is necessary to meet evolving business needs, it can cause buy side angst. Don’t let it.
As a fan of old time AM radio, the classic '60s Neil Sedaka song "Breaking Up is Hard to Do" ranks high in my now digital playlist. The difficulty of ending a romantic relationship may bring a tear to those in the dating world, but allow me to bring this relationship philosophy into the supply chain.
Breaking up with suppliers is actually quite easy to do ... of course with tact, sensitivity and an appropriate level of empathy.
Relationships are out of balance
When it comes to supplier relationships, too often buyers are focused on sentiment, while sellers are focused on sales growth and profit margins. We let emotion get in the way of the right business decision, agonizing over misplaced feelings of betrayal and disloyalty to a supplier community that often defines relationships a bit differently than we think they do.
The buyer-seller relationship is far from a balanced one. As I see it, the whole relationship process is really driven by the buy side, rationalizing that strong supplier relationship will win them cost reductions and service improvements. And with the right suppliers, it just may.
Yet for most sellers, the buyer-supplier relationship is just one aspect of their sales strategy. They will leverage relationships for as long as they can if that is what the buyer wants. Let’s just say they are less invested in the relationship then we think they are.
I often let personal factors, not objective business decisions, govern the relationship.
Supply Chain Dive
Some recent work with several large sales organizations has opened my eyes a bit. I naively approached my work with these selling teams with a firm supply management point of view.
I spoke about my success with supplier relationships and told long, involved tales of strong supplier relationships saving the day for me countless times, be it with some price concessions, emergency deliveries or just the comradery of working with strong supplier partners. That’s typically where the snickering began ... with the term "partners."
These sales teams acknowledged it is in their best interest to build long-term relationships with their customers. But the sales pros I am working with look at relationships differently.
Long-term relationships eliminate competition. They enjoy continuity of business that relationships provide but feel it can be yanked away in the blink of an eye if their pricing or service has a hiccup. They appreciate the relationships but do not depend on them. At the end of the day, they feel price is the overriding concern no matter the longevity or strength of the relationship.
Too much emotion
Buyers, on the other hand, depend on the relationships and often go above and beyond to protect them, sometimes to the detriment of their own business.
I’ve personally kept suppliers on when their performance didn’t warrant it, solely because I wanted to maintain the relationship and not offend the supplier. Sure, I would have a very tense meeting or two, but for the most part I worked extra hard to make sure the supplier was not adversely impacted by changing business conditions.
I’ve seen buyers forgo contract negotiations with suppliers simply because they didn’t want to harm the relationship, sort of like the no haggle approach to car buying. And the suppliers didn’t mind this technique one bit, extolling the virtues of the relationship while calculating healthy margins.
Looking back, I certainly overcompensated on the emotional side and undercompensated on the business end. I often let personal factors, not objective business decisions, govern the relationship. I didn’t make the switch when I needed to, holding on to the incumbent for too long.
Let them go — carefully
At times, supply managers will need to jettison suppliers due to changes in business circumstances, a commodity consolidation, a reduced reliance on sole source suppliers or just pure supplier non-performance.
There are equitable and reasonable ways to move on from the supplier. Direct, factual and honest communication is what got you into the relationship. Maintaining that type of communication is always the cleanest way to end the relationship.
If it’s a canceled order or a change in scope for a project that eliminates the need for the supplier, that’s a straightforward conversation to have.
But when the cause for separation is primarily due to poor supplier performance, it’s a tougher conversation. I would always do what I could to help the supplier improve their performance, but sometimes you just need to move on. I’d hope in some way I made the supplier better, at least for their other customers.
At the end of the day, [suppliers] feel price is the overriding concern no matter the longevity or strength of the relationship.
Supply Chain Dive
No matter the situation, certainly keep the door open on your way out. The "you’re fired" approach can come back to haunt you when it is necessary to contact that supplier once again.
I am still a strong proponent of strong and well managed supplier relationships. I find that relationships provide the grease to keep the wheels of commerce working. And while I don’t want to return to the adversarial times of yesterday where suppliers were the enemy and could not be trusted, my relationship pendulum has returned somewhat closer to the center.
Sedaka’s love songs always heralded the switch, the start of a new relationship rising out of the ashes of the old one. He warned to pick one’s relationships wisely and thoughtfully. I find that advice still pertinent today.