Power and control

27 March 2008
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27 March 2008

In markets where purchasers have to compete hard for suppliers' business, a new set of rules is being drawn up. Jake Kanter examines the issues.

The days of playing suppliers off against each other are coming to an end. That's the view of Paul Alexander, head of procurement at British Airways. His biggest problem, he says, is fighting off other purchasers to get the products he needs.

"There aren't too many places we can get spare parts for Rolls-Royce engines. We're operating in a world where suppliers are very powerful."

And one where striking a successful bond with a vendor goes much further than the money involved.

According to the latest SM poll, 72 per cent of respondents believe becoming a "customer of choice" will be important in the future.

Shaun Evans, supplier relationship manager at Britannia Building Society, says: "Becoming a customer of choice is definitely on my list of priorities. The advantages of achieving this status with key suppliers far outweigh the costs and effort involved. However, the process is challenging."

There are two parts to the struggle - securing specific commodities while convincing your organisation that it is worth investing in the relationship.

The sentiment is shared by Hedley Rees, director at pharmaceutical firm Pharma Flow. "If you are buying antibodies for sensitive diagnostics tests, there may be one supplier with expertise that cannot be matched anywhere in the world," he explains. "The performance of your product may be heavily influenced by the way you can leverage the supplier's expertise."

In those busy markets, where purchasers have to compete hard for suppliers' business, buyers will have to prove themselves worthy partners. This means more than offering a supplier a better financial deal than their nearest rival.

Neil Dixon, procurement manager at Leaseplan, says suppliers will want to do favours for purchasers they want to work with, not just because of the money they spend.

The benefits of such a relationship can be huge and, as many purchasers explain, becoming a preferred customer can develop collaboration.

Adam Smith, senior buyer at manufacturing firm Ceramaspeed, says: "We are always looking at ways of not being dependent on the materials, such as approving alternative sources or redesigning products. This is often carried out in conjunction with the supplier."

And purchasing consultant James Jaggard advises: "Work with and share benefits with your suppliers, while they work against your competition."

Proper treatment of suppliers was mentioned as key to developing this type of relationship.

"As long as procurement demonstrates professional and ethical behaviour then suppliers are more likely to engage with them," says Martin Blake, head of corporate procurement at London Probation. "Follow this with fair contracts and incentives and you'll be top of their list of favourite clients."

Leslie Campbell, CPO at Reed Elsevier, says suppliers want to see commitment from buyers. "[The relationship has] got to be mutually beneficial," she says. "One the supplier feels is a sustainable relationship."

SMmar2008

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