Should price be the primary metric of supplier management?

by Jamie Flinchbaugh on 11-05-14

Are you treating your suppliers right?

General Motors, a company historically adversarial with their suppliers, long outlasting their 800-pound gorilla status, is working towards mending and building relationships with its suppliers.

Some of their playbook is the same old GM. They are looking to consolidate their supply base so that they can have better pricing leverage. It’s a playbook shared by many others. So many companies I work with are called into big customer supplier “summits” (because it sounds collaborative) and told “we’re going from 2,000 suppliers to 800, and if you want to make the cut, give us a price decrease.” It’s a threat, but only a threat to those that have nothing to differentiate themselves. Those who come and can demonstrate unique technology, or standout performance in other areas, end up getting a free pass (as long as they keep it secret that the gorilla’s growl isn’t so scary).

But GM has a bigger problem. When supplies don’t trust the company, or trust in their market assumptions and projections, why would they bring them their latest technology and innovation? In a field where innovation is often happening at the feature level, but somewhat “plug and play” components or devices, all of the automakers depend on their suppliers to innovate, and of course, bring those innovations to them so that they can differentiate in the marketplace.

If you’re on the buying end of the supply chain, as GM is, how do you treat your suppliers? If your suppliers have a choice, are you the first ones they would bring new innovations to? Do the innovative companies want to work with you?

And if you’re on the supplying end, are you brining innovations to your customers or waiting for them to ask? Do you worry about price because it is the only way to differentiate yourself? Or can you set your own terms?

In a global economy, price is the easy part. Good supply chains are designed around much longer-term thinking. Are you?