Prime Advantage Blog

The Hidden Costs of Changing Indirect Suppliers

Dan Grant on Jan 7, 2016 10:43:31 AM

Indirect goods are a great place to make cost saving transitions for your company. Suppliers vying for your business by offering you a better deal are pretty easy to find. They may even allow you to keep the same brands you are currently using. But don't forget about the organizational impacts when engaging in this type of transition.

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Sure the lower prices look great and the new supplier provided superb data around all of the items that you use today. But indirect goods usually impact multiple buyers in the organization, so it may not be easy to flip a switch and get 100% buy-in on the new preferred supplier. Here are some points to address when considering a switch:

  • Your colleagues might struggle to find the product they are used to from the new supplier, forcing them to compromise on a substitution. Thinking through where replacements need to be made before you roll out the new vendor will help bridge the gap for the users.

  • Change is hard, and many users won't see the overall value offered by the new supplier or why the adjustment was made. They may only notice how difficult the transition is making their job. Communication is powerful and could help win supporters.

  • Employing the new system and process will take time and could impact availability of certain items. Know where you will have to manage inventory or bring on additional material from your current supplier.

  • Make sure to implement a plan to monitor existing inventory and any products that have changed.

  • Don't try to convert during a peak time in your business; this will only compound any frustration.

In addition, make sure you are considering all of the switching fees that you will incur in the transition. This includes the costs of: negotiating the contract, switching your systems, connecting for efficiencies, as well as other hidden fees in your current contract that may be hurdles to realizing your expected cost savings.

Your current supplier knows your business and has learned a lot throughout your relationship. If the partnership is working and you are merely moving for a small incremental savings, you may want to address your current issues, if any, before you decide to jump to a new supplier. Renegotiating your existing contract could be a larger cost savings opportunity.

But if you are having supplier issues, don't let all of the obstacles to change discourage you. Maintaining the status quo might be costing you much more in the long run. Just keep in mind that a well thought out plan to change suppliers will help mitigate the user heartache.

Industry insight drives operational cost savings

Topics: Supply Chain, Procurement

Dan Grant

Posted by Dan Grant

Daniel Grant is the President of Prime Advantage, a Chicago-based Group Purchasing Organization for mid-market manufacturers.

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