How to become a preferred customer

Daniel Ball
4 December 2013

Daniel Ball, director, Wax Digital4 December 2013 | Daniel Ball

In my previous blog I examined why the concept of being a preferred customer is gaining traction amongst procurement people. Here we continue by looking at some of the things that must be implemented to make it a reality.

At its most basic level the preferred customer promise could be a guarantee of payment on time. Rather than holding suppliers to ransom through late payment, which on a large scale could put them out of business, why not gain their trust by paying what’s due when it’s due? A supplier is far more likely to invest in you if they know there’s a fair deal on the table, rather than a catch. The reduction in hassle for both supplier and the buyer, if bills are paid on time, is significant. From the customer’s perspective it could also be the opener to agreeing preferential payment terms. A supplier may weigh up that payment on time at 60 days is worth taking, over the current 30-day terms that slip to 90 days and beyond. For the customer, this is where orchestrating processes and systems that ensure you can meet service levels for the supplier become important – the role of the supplier portal, for example.

One of the main challenges of being a preferred customer is the current need for cutbacks and rationalisation. Generally speaking it is hard to demonstrate your commitment to suppliers when you are in fact spending less with them or reducing their number. Better knowledge of your suppliers through information can lead to improved understanding of their ‘fit’ for you as an organisation. As well as highlighting the square pegs in round holes and the unnecessary duplications of contracts, it also shows those you could and should do more with.

Reducing the number of suppliers you have, like Premier Foods did recently, means you have more time to focus on the ones you need and want to keep. In many cases like this one, suppliers are being required to ‘invest’ as part of the deal. Where this is the case it’s important the preferred customer ensures the deal is worth having from the supplier’s perspective. What is the trade-off in regard to terms of business, pricing, guaranteed work and so on, in return for investing in innovation, or paying to use a new compulsory supplier hub?

It’s also worth remembering rationalisation is not always a ‘cut or keep’ decision. Aligning suppliers with the business can also result in an increased number, bringing new opportunities to the market as a model business customer.

While the balance of power between customers and their suppliers may never be truly level pegging, there’s more to supplier management than merely keeping them under control. Benefits include automation, reduced paperwork, cost and timescales, regular payments, reduction in errors and general visibility. Knowing your suppliers, and letting them know you, can only help in forging a preferred relationship all round.

☛ Daniel Ball is director at Wax Digital

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