Does the Procurement Boardroom wilt under supplier pressure in a downturn economy?
Whereas the manufacturers see a dwindling demand in the consumer market, the suppliers feel more assured in a B2B environment. They enjoy the flexibility to take the same components to multiple customers (manufacturers) at the same price. So, I strongly believe that whereas the manufacturers reel under the crunch of the buyer’s market, the suppliers enjoy a seller’s paradise.
Platform is the magic mantra for the suppliers’ success. They follow a modularization strategy for their components which can be configured to customers’ requirements, with a commonized core. These suppliers have mastered the art and science of platforms, which the manufacturers or product assemblers are struggling to decipher. To counter these product platforms, it is only the Collaborative Procurement Platform (CPP) among the manufacturers which can create a breakthrough. In a CPP environ, the buyers of multiple manufacturers join hands to evaluate their aggregate demand for such platform components, at prices commensurate with economies of scale. For example Toyota, Nissan, Ford and GM can come together on a common platform for buying “60~70 Amps Internal Fan 3-phase square winding gradual excitation Alternators” from the likes of Denso, Bosch, Mitsubishi, Valeo, Visteon etc. Emergence of such CPP would commoditize suppliers’ components. Suppliers would be beaten hands-down at their own “commonization” game.
To develop such a platform among multiple manufacturers, a strong framework of process, governance, evaluation and communication is necessary.
Process: A standardized process with clearly laid down business rules is necessary to bring in the element of fairness to all participating entities.
Governance: Since most competitors are being brought together in a common commercial platform, governance mechanisms like price-protection-norms, multi-party contractual obligations etc. are necessary, to prevent and avoid law-suites.
Evaluation: Evaluation of price-performance merit for aggregated demand needs to be carried out meticulously, so that there is benefit to all participants in the platform.
Communication: Transparent communication is THE most necessary condition to build trust and maintain a healthy synergy among cut-throat competitors.
In this economic crisis where the manufacturer’s marketing folks are on a warpath to retain market share, it seems a myth that their purchasers would collaborate. Do you also believe this “collaboration among competitors” is a possible survival strategy for any Strategic Procurement initiative in this downturn?
