Suppliers: How to Get a Bigger Piece of the Pie
With more companies seeking to diversify their supplier base, the opportunity is there to increase your share of the business. Here’s how.
Like it or not, single-sourcing for large contracts is becoming a thing of the past. Government agencies and big companies alike seek to have multiple providers for their key materials and services as a way to protect themselves. Ask for a specific reason why this is so, you’ll likely get one of the following excuses:
- “We can’t put all of our eggs in one basket.”
- “We feel like it keeps all of our suppliers honest.”
- “It’s just our policy.”
Because the policies are dictated by either the board or the procurement department, it’s not likely that they’ll be going away anytime soon. But for all of the chatter about the benefits of diversity in the supplier base, rarely is the spending split equally between all players. For obvious reasons, I refer to the supplier with the largest share as the “tiger.” The supplier which has the smaller share I call the “stick,” since it will often be used to keep the “tiger” in check. Each has its own risk and opportunity, but the strategy, depending upon your position, may be very different.
The first question to get answered is: Are you the tiger, or are you the stick?
When you are the tiger…The good news is that you have the largest portion. The bad news is that every gain that other suppliers make will probably come from your share. You are the biggest target. Because customers have set up this ongoing competition between the various vendors, you can bet that they will be playing you against each other. You need to discern in this ongoing relationship what your strength is and adjust your strategy accordingly.
- When you’re winning—When you are clearly outperforming the other players you can continue to press for increasing volume, but don’t expect that you will ever get to single-source. Better to work for longer terms or additional sales of secondary products and services. Besides, when you are the tiger and you are outperforming the competitors, you probably have the most volume their policies will allow.
- When you’re losing—Seek to demonstrate that your performance is being compared out of context because of the scale of your work. This is a short-term answer while you work through your performance anomalies and get back on track.
- When things are neutral—A client once told me, “Small vendors are a big annoyance over time.” The best time to press for more volume, believe it or not, is not when you are winning. The best time is when things are neutral because—all things being equal—your customer would rather give more work to one player to make his or her own life easier.
When you are the stick…The vendor who has the smaller volume is often times used as a stick to keep the tiger under control. Companies can use the strong performance of a small vendor to get the attention of the tiger and goad it into working harder. The question is how to leverage this performance to gain revenue share.
- When you’re winning—If your performance is strong, ask for a 15 percent to 30 percent increase in volume above your current volume. This is a manageable amount for you to take and still provide great results. It also is enough for your customer to scare the tiger into performing better. However, once you have the increase that you can manage and maintain results, the work will likely stay with you.
- When you’re losing—If your performance is not as strong as the tiger’s, push hard with your client to increase your volume. Explain that the disparity in volume is a contributor to your performance. If the percentage of work you are receiving is too low to be significant, then the measure is not statistically valid. More work provides the kind of volume that will allow you to show a critical mass of results. This may give you the amount of work necessary and the time to improve your results.
- When things are neutral—Similar to the tiger, you want to take the position of pressing for more work. Your approach is to seek parity with the tiger since your results are similar.
Being one of multiple suppliers is a constant push-me-pull-you struggle. It’s not ideal, but those are the customer’s policies so the best you can do is take make the most of the situation. To win the larger share over time, you have to manage the relationship every day to your best advantage, whether you are the tiger or the stick.