Winning The Parts Allocation War

I have worked with a wide range of companies and have an excellent network of connections. Because of this experience, I know their procurement methodology toward suppliers. There are three primary methodologies:

1. Build partnerships and establish multi-year procurement agreements. Most supplier partnerships develop from long-term relationships.

2. Issue one-year contracts and rebid top spend annually. Switching up to 25% of purchasing volume of the supply base each year is typical.

3. Rebidding every purchasing decision and treating every decision as a spot buy. The exceptions are commercial and commodity parts.

With this information in hand, I completed an informal analysis of the client’s procurement methodology. I asked how they were faring with the current supply chain allocation and pricing pressures? If they are suffering from material shortages, delays, price increases, or the inability to secure a container to ship your international goods? 

First, understand that everyone is facing some type of delay, allocation challenges, or upward pricing pressure.  The main differentiator between groups is the magnitude of the “pain” experienced.

Reviewing the methodologies and the level of pain felt in each group:

1. Partnerships: They feel “bruised” but believe their suppliers are looking out for their best interest. For allocated items, I have heard multiple times, “we are not at the end of the line.”

2. Suppliers: Generally, they are dealing with more shortages and allocation than the Partnership group and a significant magnitude less than the vendor supplier group. However, it’s manageable.

3. Vendors: This is the group that is feeling the most pain. One of my clients point-blank said, “we have zero bargaining power, and the only answer is to pay more money or risk not getting our deliveries.” 

In summary, my informal poll of purchasing managers showed that 85% believe that they would be worse off during the period of disruption if they had not established partnerships and supplier relationships. They may not be perfect, but it’s a far better experience than that of their colleagues who have a short-term focus on suppliers.

I always insist, “a crisis is a terrible thing to waste.” Now that you can see the correlation between supplier partnerships and short-term methodologies, what actions can you take right now to play to win and improve your total cost of ownership?

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