Moving Together. . . or Apart?

[From iSource Business, December 2000] Suppliers are like members of your family. Sometimes the ones closest to you regularly drive you nuts. Some are wonderful, ever-present friends, much like a beloved sibling or cousin. And others you just avoid, until you find out that they're your new boss's favorite supplier.

In the very nature of supplier relationships, it's no wonder that at some basic level, e-commerce frustrates us. How could we dare ask Sally in administration to order through our nifty procurement system instead of chatting with John, the office supply salesman, to catch up on how his son is doing in Little League baseball this year? And how will Andrew feel when told he no longer needs to call in his daily orders to the local printed circuit board shop? Why? We have a new tool that sends ERP messages to the supplier electronically? I bet he'll be wondering whether he'll be out of a job soon.

Even at the most senior level there must be a bit of concern. Just imagine the folks that are in the driver's seat, forming an industry-backed consortium with some of their top suppliers. What if one supplier partner pushes hard for technology they know will create problems for other valued suppliers you hope to recruit?

I've been pondering for some time now how e-commerce impacts the supplier relationship. Not surprisingly, I foresee today's e-market driving major changes in this area.

Clearly, many of our new enabling tools bind us much more closely. It takes a fair amount of time and effort for us to collaboratively share forecasts and provide access into our internal databases. Suppliers, too, are expending more effort to support us when they learn our new systems, set up custom catalogs or manage our inventory.

The benefits of these joint efforts are the same as the ones strategic procurement advocates have been voicing all along better support, better designs and lower costs. But we need to remember that the more time we spend on developing individual suppliers, the higher we make our own switching costs.

Many of the arrows in our new technology quiver distance us from our suppliers. For example, I remember many times when I limited RFQs only to suppliers I had met. But would I have been lucky enough that the sheet metal suppliers who made appointments with me in the last couple of years included the top five? I certainly couldn't tell from the Thomas Register which suppliers could provide me with a class-A finished card cage.

Now we don't have to stick with a supply base of folks we know. We can send out a thousand RFQs with the effort of a keystroke, finding new suppliers like never before. We can even fill a critical shortage without having to talk to anyone if we place an order online or launch an online RFQ on one of the myriad e-commerce sites.

Technology also drives us apart if we are not considerate of our supplier's needs and limitations. Are you adopting a system that will unfairly burden your supplier with high transaction costs? Or are you quoting out suppliers with whom you have no intention of actually doing business?

I conclude that, overall, we won't be any closer to or more distant from our suppliers than we ever were. But the touch points of our organizations are changing. Where before the buyer or the employee needing a quick print job was the front-line voice with our supply base, now senior level professionals are giving the nod to long-term volume agreements and assuming responsibility for managing the relationships. Although each will still communicate regularly with the suppliers, the strategic conversations are happening further up the chain.

As a supplier, you'll either be in or out. It will be much harder to do a little business for every company, because you could always find someone willing to give you a try. Now your customers' employees will be measured on compliance to contract, and many will have initiatives to limit "maverick buying" to ensure volume pricing agreements are honored.

Yes, we'll still spend a lot of time with our suppliers, and the occasional Saturday golf game won't disappear. Suppliers will just be playing with different people.

Deborah R. Wilson, C.P.M., is an analyst and consultant who specializes in purchasing automation strategies. Prior to striking out on her own, Wilson worked in senior procurement positions at Bay Networks.

Loading