In procurement parlance the concept of preferred suppliers is far from new, but what about the preferred customer? While most organisations segment and rank their customer base to some extent, is there value in the buying organisation itself proactively seeking a preferred position with its suppliers?
Increased attention being placed on supplier relationship management in corporate purchasing strategies and procurement software suggests this is so. Putting yourself in pole position with those you buy from is becoming a strategic imperative with benefits for you and the customer too.
Imagine if supply was restricted, due to a natural disaster or political or economic event. With the supplier holding the cards who would they choose to prioritise? Would it be the customer who pays on time and provides an easy to use online supplier portal, or the late payer that is hard to reach? Volume of orders will always play a part in customer preference but working relationships are an increasingly significant factor too.
In most markets there are no laws governing your behaviour as a customer. Once, the common view was suppliers should be held over a barrel for lower prices. Customers often knew little about their business practices, ethical code or product specifications. But this is an increasingly unethical view, at odds with efforts to build sustainable supply chains. The brands that haven’t woken up to this are being tarnished, if not killed, right now. We don’t need another article talking about horse meat or Bangladesh factories to know this.
This aspect of being a preferred customer is about more than just avoiding egg on the corporate face. A supply chain that is unsustainable means you have little ability to follow a long-term strategic plan as a business. That won’t be good for your future performance. A large part of making yourself a preferred customer involves investing in your chosen suppliers’ sustainability – from making sure they have cash in the bank to ensuring they are able to make and supply products to your ethical ground rules. If you want be around for the long-haul you need suppliers that will be too.
Globalisation has hit many organisations and their supply chains squarely on the nose though. Going east, for cheaper manufacturing or services, for example, has ended up proving costly; that’s unless companies get to know and work with their suppliers more closely. For every pound you take out of the cost pot by switching supplier, you could put several into the risk and liability fund to cover your back. Symbiotic relationships, especially in complex manufacturing supply chains, are essential.
Being a preferred customer involves knowing your suppliers and ensuring they know you; it’s also about keeping your promises. Promises and trust are the roots from which better business relationships and terms can grow and flourish.
In part two, we will look at some of the practicalities and challenges of becoming a preferred customer.
☛ Daniel Ball is director at Wax Digital