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Buyers & Suppliers - Time for redefined win:win practices

I just read Justin’s blog on “hammering suppliers on price”; Prof. Rob has a very valid advice for companies on early warning signs of danger from suppliers.

Hammering suppliers on price and payment terms “now” vs. “long” term relationship, is a very important aspect in risk management. When there is a financial crunch in the buying organization, their sales are hit and their bottom-line is impacted.... suppliers, as partners or extended community to their organization, are expected and should also be a part of this tough journey. (Hopefully, this is only for few more months) So "renegotiating price" and change in the DPO with the business partners are inevitable. But to what extend?

Hammering suppliers on price, exploiting smaller firms and abusing buying power on smaller businesses is too harsh. Open, transparent and honest discussions can help both buyer and supplier community in difficult times. This will pave ways to new innovation - Collaborate to innovate. Both the organizations should collaborate and align to a new win-win situation. For me, renegotiation will for sure, push the suppliers and buyer to think out of the box. Renegotiating may not be a success always, but if there is something, why not dig that out. An extensive ground work needs to be done before we step on the gas. This should not be tried with all suppliers (buy-in from all the key stakeholders is a must), because this might kill the relationship.

One small example of redefined win-win: why cannot both the organizations implement a tiered payment term? PO to suppliers would say, net 105 days or 2% discount - 70 days or 5% - 45 days. Now if my supplier is in real need of cash to run his business, they should be allowed to choose an option from the above example in his invoice and the buying organization should respect that. This is one way of managing this crisis.

”If we believe a rebound will happen, then let’s share the burden till then."

Comments

Raj,

I completely agree with the points quoted. At the end of the day it boils down to business transparency and ethics of doing business. Both directly impact the underlying purpose of doing business – Quarter on Quarter top line and bottom-line results – which is linked to the point of keeping shareholders happy. Weightage for performance of shares on the bourses is directly linked to the top management targets and tags that to their performance bonuses! I completely agree on the point that collaboration is the answer to the puzzle and one of the main considerations in collaborating is keeping the stake holders informed and appraised of the current challenges specifically if this tide is going to last for more than 2-3 years. I feel that while dealing with the suppliers the personal and organizational value system and ethical way of doing business also forms a top priority in renegotiating contracts. After all past and present personnel involved in the process and system sketches the culture within the organization and that do have an impact in the way businesses are done. At the end of the day, everyone struggles to keep the TCO intact and if we handle the end customer expectations accordingly all things down the supply chain can be handled with relative ease!

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