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The cost of switching suppliers

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While procurement stakeholders state that switching suppliers in a business represents a cost of change, shouldn't the question be whether there is a cost involved in not switching suppliers?

 

 



Years ago I attended a strategic procurement negotiation training and while we were discussing various change management topics, a fellow participant stated to the group that switching suppliers always involves a cost of change i.e. administrative cost, as well as time and efforts to implement the change in the business. We were all familiar with this statement and in fact, we hear this comment fairly regularly from procurement executives and business stakeholders.

Obviously there must be a good reason for switching supplier(s), as long term partnerships and strategic agreements have to be in place to secure the business and it doesn't have to be systematic, as giving longer term contracts to a supplier is an important lever in a negotiation. 

However, the trainer replied: And what is the cost of not changing a supplier?

Despite the fact that I have been in procurement for quite a while, I suddenly realized that he was making a very valid statement and a good statement to make towards the business, who are often reluctant to switch suppliers. In terms of messaging towards the supplier and supplier conditioning, the potential outcome of the negotiation is significantly reduced, if incumbent suppliers know that they are rarely replaced and challengers are rarely awarded with new business. Additionally, newcomers bring generally a fresh eye and are performing significantly better than an embedded supplier, which is the essence of sound competition.

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I would be curious to know what your opinion is about this.

Comments

Brilliantly written article Hugues- completely agree while there is a cost of change involved in switching to a new supplier- but imagine the value lost in just renewing contracts- while there could be much better equipped market players with fresh perspectives, capabilities and latest in design and technology.

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