What Is Supplier Preferencing?
UPDATE: I’m just back from 6 days of “Strategic Sourcing & Procurement Best Practices” training, where my delegates scored my course as 9.4 / 10. I can help your team, too!
Anyway, in this blog let’s take a look at the Supplier Preferencing model from Steele and Court (1996). It’s not perfect by any means and is reliant upon you taking an objective view of the situation, but it’s useful to get you thinking about the supplier’s perspective of your account with them.
Importantly, it can also expose supplier relationships where you are at risk.
Watch my You Tube video on this topic
The premise of this tool is that the service level that you receive from suppliers is directly linked to the attractiveness of your account with them. Better service also implies reduced risk to you.
Simply put, if you want better service and lower risk, the supplier must be confident that they’re likely to generate long-term, profitable growth by having you as a customer (attractiveness) and/or the value of your business must be meaningful to the supplier.
In practical terms, “attractiveness” can be achieved by things such as:
1. Paying on-time;
2. The supplier making a reasonable profit on your business;
3. You’re easy to deal with;
4. You collaborate to solve problems, rather than blame the supplier;
5. There are good levels of of trust in the relationship;
6. The supplier thinking that your company will help them achieve long-term business growth.
If your supplier considers your account to be attractive, they’re likely to give you unparalleled levels of good service, whether you’re in the “development” quadrant (the supplier thinks you’re a good long-term bet, worth investing in) or in the “core” quadrant (you’re already a high value account that the supplier will fight tooth and nail to retain).
On the other hand, if your account is considered unattractive, you’re dicing with danger.
If you’re unattractive and the relative value of your business is low (“nuisance” quadrant) the supplier could simply walk-away from your business. That could cause a few headaches.
But it gets worse.
If you’re unattractive and the relative value of your account is high (so you have high spend with this supplier), you’re exploitable. The supplier is likely to treat your business as a cash cow, imposing price increases upon you at a whim AND without fear of losing you as a customer.
This is a really bad position to be in.
The output of conducting a Supplier Preferencing exercise should be a set of concrete actions that you’ll take to increase the level of attractiveness of your account to the supplier.
When was the last time that you did this exercise in your business?
Get in touch if you think I could help your team elevate their Procurement capabilities.
