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  SEPTEMBER 2013
 

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The Best Customers Get the Best Ideas

Bill Michels, ADR North America LLC

Have you ever wondered how suppliers view your company? What selection criteria do suppliers use when deciding who gets the innovative products, who gets orders cut, and which SKUs get rationalized? It is essential that every company analyze just how the supply base views them. As buyers we have classifications for our suppliers and strategies for each classification. We decide if we can leverage the supplier, focus on risk, build strategic relationships, and minimize effort. This article is designed to make buyers think about how suppliers view their customers.

It starts with two simple principles: how attractive is your business and how much value do you provide to the supplier. Some of the things that make your company alluring to a supplier are financial stability, being a market leader, providing accurate business information, having a low-cost to service the business, and opportunity to grow. The second principle involves the intrinsic value that your firm brings to the supplier. Value can have an impact on profitability, market share, growth, innovation, entry into an industry, and the degree to which distribution is streamlined.

Factors that make a company attractive to suppliers:

  • Financial strength
  • Market position
  • Brand image
  • Cost of sales and support
  • Logistics
  • Standard or special products/services
  • Level of contribution to profit
  • Quality of business information
  • Behavior
  • Continuity
  • Opportunity for growth

The above list represents the current factors. The supplier might also consider what other attributes may affect its view of their customer in the future. Most of the above factors are business related, but three exceptions are behavior, continuity, and quality of business information. Though easily overlooked, be sure to include these three aspects because they do influence the supplier's perception of you as a customer.

 

The chart below identifies how suppliers position customers based on attractiveness and relative value to their business. This value can be in terms of revenue, growth, reference, foothold in a new industry, and profitability:
Customer Segmentation

If the supplier views your firm as a "Nuisance," they will make things difficult for you and will not bother to compete for your business. If the supplier is of strategic importance to your business, you need to make your company more attractive or you may need to find another supplier. In the "Profitable" quadrant, the supplier is achieving value from your business, but does not find it very enticing. The danger here is that the supplier will maximize profitability from your firm, while searching for a more pleasing partner. You must make your company more desirable or move it to a supplier that thinks you are core to their business. If you find your company in the "Core" quadrant, the supplier will fight off competition and protect its interest in your business. They find your firm attractive and value adding. The supplier will be innovative, responsive, and a true partner. The last classification is "Growth," where the supplier finds your business inviting, but hasn't achieved the full value from the relationship. They will be extremely responsive, but if the growth never materializes, your firm can quickly become a "Nuisance."

It is important to note that we spend time, money and energy to qualify suppliers and build performance relationships. For the buyer it is very difficult to change a strategic supplier. For the supplier, change can come relatively quickly. It makes good sense to review your suppliers and see how they might classify you as a customer. If your company categorizes a supplier as a strategic partner and they classify your company a nuisance, better get working on either changing the supplier's attitude or changing the supplier. The best customers get the best value from their suppliers.


Bill Michels is President ADR North America LLC, a specialty-consulting firm that focuses on purchasing and supply chain management. Bill is also President of ADR-ISM Supply Chain Management Consulting (Shanghai) Co., Inc. and a Senior Vice President of The Institute for Supply Management. Before starting ADR in North America, he had a distinguished career in senior management with SCM Corporation, Smith Corona Typewriters, Durkee Famous Foods, Boise Cascade, Campbell Soup Company and Vlasic Foods.

Well known in the supply management and operations management community, Bill is a sought-after speaker and writer with many publications, including co-authorship of the book, Transform Your Supply Chain. He has been honored 7 times in the Supply & Demand Chain Executive's "Pros to Know" group. Bill earned a BS in Business Administration with honors from Rochester Institute of Technology and an MBA from Baldwin Wallace College. He holds a CPSM (Certified Professional Supply Manager) and a lifetime C.P.M. (Certified Purchasing Manager) from the Institute for Supply Management.

 
 
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