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April 2017

Value and Innovation with Incumbent Suppliers

Engaging in change management and looking beyond cost can help an organization achieve mutual profitability with its supply base.

The Megawatt Star of 2017 Needs No Instruction Manual

The 30 Under 30 Rising Supply Chain Stars program recognizes young supply management professionals making impressive and lasting impacts in their field.

The Nuts and Bolts of MRO Spend

Working closely with end users and performing cost analyses can pull MRO spend into order and help prevent unplanned expenditures.

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Featured Article

Value and Innovation with Incumbent Suppliers

Engaging in change management and looking beyond cost can help an organization achieve mutual profitability with its supply base.

By Sue Doerfler

Driving down supply cost is a leading concern among supply management organizations. However, seeking continual cost reductions from incumbent suppliers can inhibit sustainable value, creating tension and damaging a long-term relationship.

By looking beyond cost to new approaches and opportunities, organizations can capitalize on the added value and innovation their incumbent suppliers can offer.

“You want to grow together profitably with your supply base,” says Yves Thill, partner in A.T. Kearney’s Operations & Performance Transformation Practice in Atlanta. “You want them to make a profit. You want them to help you move ahead of your competitors.”

Incumbent suppliers are a different breed than other suppliers. They are familiar with a company’s supply management organization. They know the pain points and the strengths.

Likewise, supply management practitioners have spent time and resources getting to know their legacy suppliers, says Thill. “They have vetted them for cost, quality, services and other factors important to the business,” he says. In contrast, qualifying a new supplier takes equal time and resources, and possibly new tooling, Thill says: “It can be costly to bring in a new supplier.”

Having an established relationship with long-term suppliers has numerous advantages, including the development of new products and ideas. Because they are familiar with their customer’s business, incumbent suppliers have a window into the needs or opportunities not readily clear to the supply organization.

“The people who have tremendous amounts of expertise happen to be our suppliers,” says Robi Bendorf, CPSM, C.P.M., president of Bendorf & Associates, a supply management consulting company in Monroeville, Pennsylvania. “Because they are dealing with many other customers as well, they have a broader sense of what the possibilities are.

“Many new products come about because suppliers give us ideas for them. Or they can introduce products into our product line that we don’t have to manufacture.”

Additionally, longer-term relationships allow both parties “to develop future business plans with added certainty and an understanding of terms, pricing and service levels,” says Joe Broski, senior sourcing manager, fuel at Republic Services, which is headquartered in Phoenix and has locations nationwide.

“Win-win situations can develop for all parties involved through established performance standards, formal continuous improvement platforms and a genuine sense of partnership,” he says. “They can implement longer-term deals downstream, realizing improved business terms from volume considerations and potentially offsetting future risk.”

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