Traditional methods of supplier “management” through fear and threat are, hopefully, in decline. Banging the table and screeching for another cent of cost savings are increasingly rare behaviours. Influencing and persuading skills are competencies that both procurement executives and their stakeholders need to develop to be successful in creating fully workable and sustainable supplier relationships.
So what is supplier conditioning? It is about convincing your suppliers that you have certain expectations of them and that you need them to respond to you in a particular way. It is about being clear about the outcomes you desire and what the implications might be if they are not met, but in a nice way!
According to Jonathan O’Brien in his book Category Management in Purchasing - A Strategic approach to maximise business profitability, there are two types of supplier conditioning:
Offensive : This is where you send a powerful message, delivered carefully, about what you could do if your supplier is unable to meet your needs, such as divert your purchases to a competitor of his or import from a low-cost country. Not issuing a threat but presenting the fact that you do have alternatives.
Defensive : Here you have a less attractive option where you have to respond to your supplier attempting to condition you. He may suggest that they have trimmed all cost elements to the bone already, or that raw material prices are increasing next month etc. Once you are on the back foot, it is difficult to retain purchasing power, condition the supplier before they condition you.
The supplier needs to hear consistent messages from your organization. For this to work, a certain amount of planning and engagement is needed internally. People at all levels need to be aware of the messages that are in play, from the marketing director through to the accounts payable clerk.
The message content should be on topics that are based on what is happening in your own business. If internal communication channels are in place, these should be straightforward but regular reinforcement is required. Examples of these messages could be:
In our business……..
Message
We are having some financial challenges, money is tight, customers are not paying us on time
Ask for concessions such as easy payment terms, holding off on price increases
We are restructuring, management changes are imminent
Be ready for some changes in the way we deal with you, new approaches
Our product range is to be expanded, we may discontinue other lines
Our sourcing requirements will be changing, be flexible and be ready
We are looking for suppliers that add value and initiate improvements
Let us know how you can be innovative and at the same time deliver reduced costs
Depending on procurement’s relationship with the supplier, it may be opportune for marketing or operations to deliver difficult messages without emotion.
Letting your supplier know that you are perfectly aware of the difference between these two concepts should be clear at the outset. Understanding your supplier’s approach to price determination can give you a real edge. Price is often not a “real” number arrived at by costs + overhead + profit. It can be a number thought up for the purpose of establishing what will “fly”. Asking your supplier to explain the cost elements in his proposed price can be very revealing. Any attempt at “greed pricing” will be uncovered right here. You now have an opportunity to condition your supplier to the fact that you are aware of his input costs and that you are quite familiar with his industry.
This term, used by O’Brian, refers to your first face-to-face exposure to a new potential and hopeful supplier. This meeting is often because of them passing the pre-qualification stage in your Request for Proposal (RFP). You have asked the supplier to do a presentation to your cross-functional team. Their beautifully crafted proposal tells a compelling story of how they can do great things for you, often in pictures, but this is the time to set the ground rules. An opportunity to do some supplier conditioning should not be missed. How are they going to actually deliver the solution, who will be working on the project, what is the time frame? Who can we talk to that will confirm your credentials? Their RFP response will not tell you any of this; some direct questions need to be answered. Setting the tone here for future meetings is crucial so that this short-listed potential supplier understands the principles of how you apply Supplier Relationship Management.
Supplier conditioning is a journey, not an event. If you have been working consistently with a supplier to partner with you on cost reduction and value-adding solutions, their responses to your requests and their price proposals will be more realistic. It is important to make sure that your conditioning efforts are credible and believable, any stretching of the truth will be obvious and dismissed as pure tactics.
Elaine Porteous is an Independent Supply Chain and Human Resources consultant, commentator and business writer
Reference: Category Management in Purchasing - A Strategic approach to maximize business profitability. By Jonathan O’Brien. ISBN: 978-0-7494-6498-1