Our discussion of why Connie Customer and Sam Supplier would want to build a long-term business relationship continues. 

As promised, we will talk about a situation in which Connie and Sam work together to deal with a supplier consolidation effort by Connie’s customer.

Feedback indicates that the last posting was a little overwhelming.  As a result, we are going to break this down into four parts which are:

• Why might Connie’s customer want to reduce the number of suppliers from whom it is making purchases?
• What issues might Connie and Sam be concerned about when learning that the customer is consolidating its supplier base?
• How might relationships help Connie, Sam, and Connie’s customer achieve their business objectives in this situation?
• What steps might Connie and Sam take upon hearing about the consolidation effort?

Our discussion begins now with consideration of why a customer might want to reduce the number of firms from whom it is making purchases.  Is this a situation that you have faced?  If so, you are in good company.  A lot of firms are trying to reduce their supplier bases.

When I think about reductions in the number of suppliers used, the five reasons which come to mind for me are: 

• Reductions might increase the consistency surrounding a particular product or service.
• The number of suppliers may make it difficult for the firm to comply with the provisions of each contract.  Having been responsible for relationships with 5,000 suppliers in a former life, I know how time consuming this can be.
• In many cases, firms offer volume discounts that might increase if the supplier base was reduced.
• Sometimes, suppliers include exclusivity clauses in contracts.  Such clauses do not require customers to purchase any of the product or service at all.  When the customer does purchase the product or service though, the clauses require that the customer buy the products or services from the firm(s) named in the contract.
• Connie’s customer may believe that reducing the number of suppliers will reduce the firm’s overhead and administrative costs.  Contract negotiation and contract management can be very exensive in many firms.

What other reasons can you think of that might lead Connie’s customer to reduce the number of firms that it wishes to use? 

Filed by Coleen Davis at 8:51 am under Negotiations, Planning Tips