I just read an interesting post on the Nipendo blog titled “Supplier Bullying: Cutting The Branch You Are Sitting On” by Eran Livneh.
It actually reminded me of a post I wrote back in 2007 and have revisited many times since, regarding Walmart’s treatment of its suppliers. In particular the Vlasic Pickles case study.
“Finally, Walmart let Vlasic up for air. “The Walmart guy’s response was classic,” Young recalls. “He said, ‘Well, we’ve done to pickles what we did to orange juice. We’ve killed it. We can back off.’ “Vlasic got to take it down to just over half a gallon of pickles, for $2.79. Not long after that, in January 2001, Vlasic filed for bankruptcy.”
However, and similar to bullying in society, supplier bullying can take many less obvious forms than leveraging buying power to inflict onerous pricing terms on a trading partner. A slow payment process is one of them.
What I like about the Nipendo article, is that Livneh looks beyond the technology of an effective P2P platform to include what he refers to as being “innovative supply chain financing solutions.” In this regard, an earlier post by the company’s Eyal Rosenberg discussing the advent of non-bank or non-traditional financing options is equally noteworthy.
The fact remains that an increasing number of studies – including an automotive industry report from last year – clearly demonstrate the link between the quality of the product and/or service being provided to the end customer, and supplier satisfaction in terms of the buyer/supplier relationship. Or to put it another way, happy suppliers ultimately lead to happy end customers.
But do most companies get this? Are they committed to a relational approach in which the win-win axiom is given more than mere lip service, or are they continuing to bully their suppliers?
Here are just a few points that will help you to determine if you are a supplier bully:
- How is the procurement department in your company rewarded for its efforts? If the focus is predominantly on getting the best price, then it is likely that you are a supplier bully.
- When a supplier calls you up and tells you that the present pricing package is having a negative impact on their bottom line, how do you respond? If you say I am sorry to hear that but this is the pricing you agreed to so there is nothing you can do, then you are likely a supplier bully.
- If a supplier has to wait 60, 90 or more days to get paid by your company, then you are likely a supplier bully.
Of course, if you have found yourself on the wrong end of negotiations with a supplier then you were, at least at one point in time, a supplier bully.
With regard to this last point, I can recall the story that the head of purchasing from the University of North Carolina once shared with me.
At the time, the Chapel Hill institution depended on coal to power it’s campus. The challenge was that the primary mode of transporting the needed coal was by rail. Because there are few options in terms of rail providers, the purchasing exec lamented that the supplier was really giving it to them in terms of transportation pricing. Because everyone at the table knew that they were for all intents and purposes the only game in town, the supplier obviously took advantage of the situation.
Now I might have had more empathy for the university’s purchasing head had I not witnessed first hand his approach to “negotiating” with suppliers who were in shall we say, a less than favorable position. I guess that it is true, what goes around comes around.