Growing imbalance in supplier relationship management is creating critical vulnerabilities for procurement organizations

An alarming imbalance of power between indirect suppliers and customers threatens the effectiveness of procurement departments in 2022.

Steadily leaned out since the Great Recession, procurement teams in even the largest organizations are being asked to do more with less, and suppliers have responded by developing increasingly hostile and anti-competitive strategies to grow margins as soon as a deal has been signed.

It’s time to sound the alarm.

The prevailing power imbalance requires procurement teams to arm themselves with the tools and strategies required to engage in the joust with their indirect suppliers. The only alternative is to submit to a defeat.

In the coming months, we’ll be providing in-depth coverage of this power imbalance on Fine Tune’s “Insights” page and in industry media.

In this series, we will explore the range of emerging vulnerabilities that leaned-out procurement professionals now face, and potential strategies for regaining lost leverage.

Specific topics will include:

Inability to engage in any sort of expense management whatsoever.

Expectations that procurement do more and more with diminished resources has watered down the definition of “category management” to a level belying any reasonable definition of the word “manage.”

All business transactions entail some level of continuous “joust” over actual costs with suppliers—this is a fundamental and healthy element of functioning markets, and engagement in this joust is an essential element of category management. In 2022, however, procurement departments simply aren’t adequately resourced to engage in the joust, and suppliers have taken notice, devising myriad strategies for eroding procurement’s efforts and growing their own margins.

How can procurement departments overcome this acute vulnerability and regain lost leverage?

Inability to develop required relationships (and, critically, solidarity) with internal stakeholders/operators/P&L owners.

“Pat the Purchaser” doesn’t know her own teammates and field operators nearly as well as she used to. She doesn’t have the time to cultivate these relationships and make sure everyone is “wearing the same jersey.”

Suppliers have gained the upper hand in that they often do have tighter relationships with field operators, and this has significantly eroded procurement’s leverage at contract negotiation time.

How can procurement rebuild lost solidarity with stakeholders and internal customers, thereby regaining lost leverage?

Critically, the threat of lost business has dramatically eroded.

And it’s not just the solidarity with internal stakeholders at the root of this—it’s also plain old-time and resources. Indirect suppliers know that too often, procurement departments don’t have the bandwidth to navigate complex and cumbersome supplier transitions.

Consolidation of supplier industries, too, has exacerbated this challenge. With most industries consolidated down to two or three viable national alternatives, suppliers frequently have no fear of lost business (for a range of reasons) and are further emboldened to engage in anti-competitive behaviors.

How can procurement reassert the threat of lost business and successfully navigate increasingly uncompetitive industries?

It’s getting worse, not better—and anti-competitive behaviors are on the rise.

An emboldened universe of indirect suppliers is increasingly engaging in anti-competitive behaviors, to the point where the Federal Trade Commission is actively gathering examples of these practices from US consumers in an effort to curb this trend.

From anti-competitive contract language to hostility toward audits, to hostility toward 3rd-party management, suppliers are solidifying the power they’ve already gained and attempting to grab more.

How can procurement combat this anti-competitive landscape and somehow reclaim some power in the marketplace?

We’ll explore these challenges and offer potential strategies and solutions for overcoming them in the weeks and months ahead.

Stay “Tuned.”