Supply Chain Profitability - Purchasing from a Poor Power Position
Although in most buy/sell relationships the buyer has the upper hand, in some circumstances it is the seller not the buyer who can have the power position in a buy/sell relationship. Situations in which this occurs might involve:
The seller has a monopoly on the products and/or the raw materials or components needed to make finished product(s)
Materials or resources required to make the products are always in short supply
Demand or availability fluctuates causing temporary over-supply/short-supply
Certain products are only made by manufacturers during a single production run or a given time of year and the producer under-estimates the annual demand
Unexpectedly, a product or products become extremely hot and supply cannot keep up with demand. Not only will your competitor who has the hot item in stock get orders for that item but for many complete orders, all at your expense
Examples encountered by my clients over the past years have included:
The Olympics were to be held in Greece and there was a huge demand for steel and steel products to construct new arenas, stadiums, and other facilities. At the same time China was going through a major industrial expansion using inordinate amounts of steel. My clients in the US could not get steel or steel-based products, especially steel pipe for months on end
Quite a while ago businesses in one country purchased the whole Hawaiian pineapple crop and no one else could get pineapple for a while. When it finally became available, those who got it first prospered
Every so often there is a new hot diet item such as a food or electronics item, etc. and the product or components such as chips cannot be made fast enough to keep up with demand
Weather catastrophes can cause supply chain disruption such as crop failures or halts in manufacturing and not only can one not get the particular fruit or vegetable or commodity for resale, but also cannot produce the products made using them as ingredients or raw materials. This can also happen to any business when an area suffers an earthquake, tsunami, uncontrollable fires, etc.
When such events happen, the largest customers, the oldest customers, or those with personal relationships with the supplier will get favorable treatment hurting your ability to compete.
When in a poor power position there are several things one can do to gain the favor of the supplier:
Add value - you can recommend other customers to this vendor; buy their complete product line; feature the vendor’s products in a newsletter to your customers and contacts; and/or give them credit for some of your successes. Become a more valuable customer.
Make your company conceptually larger - create a buyer’s group, have your friendly larger customers contact the vendor directly on your behalf, giving praise to you and your service and letting the vendor know of your importance in the given supply chain and your importance to them.
Make it as easy as possible to do business with your company - pay all bills on time, place stock orders, provide forecasts to vendors, participate in suppliers’ promotions, praise your direct contacts at the supplier whenever possible.
Find a common ground and new ways to develop a personal relationship with your suppliers. E.G.: My client was visiting a supplier and saw a picture on his desk of a hockey player (the supplier’s son). He invited the supplier and his son to a NY Ranger hockey game (front row at Madison Square Garden). Not only is my client a favorite customer but he gets warning calls as supplies are about to become short although he is not a large customer.
If you are resourceful and creative, you might just strike a responsive chord and improve your competitive position when the possibility seems remote.