Relationships with suppliers: Since there is so much emphasis on lowering costs and companies often reward managers on lowering costs, their immediate reaction is to push their suppliers for lower prices and/or for more products/services. Remember that for your supplier, you are a customer (and we will get to that dynamic momentarily), and their mission is to get the highest price possible and give away the least amount in return. This confrontational business approach serves neither.
Relationship with customers: Since goals and reward systems are in place to get the highest price possible for lowest amount of offering, we often treat our customers as our enemies really. Any customer who senses this tension is unlikely to appreciate your situation and is more likely to push for more. Yet again, this confrontational approach helps no one.
We are all in this together
As shown above, we at xInvest Consultants believe that if we align our goals with those of players up and down the value chain, we can all win. The competitive, confrontational approach may yield short-term benefits, but it simply beats everyone otherwise.
In that sense, I like the approach taken by Wal-Mart with some of its private label suppliers. Wal-Mart buyers spend time understanding the process and the manufacturing economics of their suppliers and then agree on a price that works for both. No wonder that so many private label companies gladly supply thousands of products to the company and it is a win-win approach.
About the author: Jay Dwivedi is a management consultant who helps companies think through their business problems to increase profits and sales. He maybe reached by following the Contact links above on this page.