There are two lines of thinking when it comes to supplier-customer relationships that I often see in my consulting experience.
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The first is the low-cost approach. In this scenario, the customer shops around and picks the lowest of several quoted prices. This often results in multiple suppliers being used for the same product over the course of time.
The second approach is the choice of one reliable supplier and the development of a good supplier-customer relationship.
While both approaches have their costs and benefits, using too many suppliers for the same material can spoil your quality and cripple your company.
While the low-cost approach makes sense from a purchasing point of view, we need to be certain that we're comparing apples to apples.
While two suppliers may offer the same product, the quality of the two products can be vastly different. There are a myriad of reasons for this, but the most general one is that both suppliers have different production and distribution operations. The product does not go through the same factory in both instances, so the quality is going to differ.
When you create you product, you want to be as consistent as possible. Consistency will help you deliver the highest quality product possible. Quality is of the utmost importance when it comes to delivering a product to the customer. Low-quality products are likely to be returned and the customer is not likely to repeat their business. As a result, we want to make sure we do everything we can to improve the quality of our product.
When you have inconsistent materials, you're going to have an inconsistent final product. This will result in varying degrees of product being delivered to the customer. Imagine if your house painted and one half was one shade of red and the other side was another shade.
I consulted for a company that manufactured liquid vitamins. When I came on board, their purchasing department had been instructed to use the low-cost approach. Typically they quoted three to four vendors and chose the lowest price. With vitamin production, there are a myriad of ingredients and a whole host of suppliers. When reviewing the product quality records and customer complaints, it was clear that their quality was out of control.
When I reviewed the production process, it was pleasantly surprising that their operation was very consistent and clean. This meant the reason for the quality issues was in the ingredients.
By ordering one ingredient for a batch from one supplier and another supplier for the next batch, the quality of each batch was vastly different. Customers often called to complain that the taste of the bottle they had last month was different than the way this month's bottle tasted. Not only does this look bad for the company, but it can raise serious issues about the safety of your product.
It took some time to change the purchasing department's approach and show them the light. Eventually, the ship got turned around and they started using suppliers based on price, performance and conformance.
The consistency paid off. The product was of a much higher quality and the customers could get what they were expecting when they bought the product.