In this post, I want to revisit the porter five forces model with focus on suppliers or vendors as the key in context of the discussion that many vendors are threatening to part ways with FlipKart post their billion dollar misadventure on October 6.
What was the mistake on FlipKart’s part and how you as a vendor management professional can avoid it
Negotiated price is the little secret:
So you negotiated a great deal with your vendor which is like 40% lower than the market price of their product. Remember, it is between you and your supplier, it’s not the topic of public discourse which you can post this on your blog as a great negotiation case study in a bid to get more eyeballs, and neither can you pass this information to your vendor management peer in another organization. In other words, it’s confidential information. Sharing it publicly may cost your suppliers few customers, their image and negotiation power. If this ever happens, it’s likely that your vendor will be reconsidering their business terms with you.
In the case of Flipkart, they were able to negotiate a better price for the consumer products, and they started selling at the price lower than the retail price of these products; if you are an LG or Samsung, its highly likely that you stop doing business with FlipKart or stop owning the product sold on the website.
They love their brand:
Yes, as much as you do yours. You are not supposed to club their product with any Tom, dick or harry, never with their competitors at least. Any such action if without a written consent of the vendor would likely to raise an eyebrow.
Terms and conditions are subject to change without a prior notice:
If you are a buyer, you love to put this statement somewhere in your contract, though it’s easier said than done, an enthusiastic salesman may accept it when they need your business, but that does not mean you can revise the payment terms every 15 days and ask them to read this line in the contract. Such frequent misadventure can cost you a favourite supplier.
No one loves uncertainty:
They are not supposed to produce and stock in the warehouse, if you are expecting this, disappointment is in store for you. You cannot expect your vendor to bear the losses for your over-optimism, if you as a buyer manager got a wrong forecast, you cannot pass the whole buck on the supplier, though you can expect them to share it to some extent for the sake of relationship but both are different things. They are supposed to be paid for what they produced for you; they work with you for a long-term profitable relationship, not to keep compensating you every time.
You are getting defunct:
The news travel fast and the bad news travels like a fire. If there are rumours about you in the market, you vendor expects you to clear the cloud. If they owe you a decent amount, their concern is natural, if you don’t clear the doubts, you might get a surprise letter of discontinuation rather than the packet of your supplies.
Its either Win-win or Loose-loose:
You are making profit on the cost of your vendor, not forever. Its just a matter of time; your fierce competitor will turn into their best friend.
When your cost of production goes up due to inflation, its natural instinct to try and get better cost from your vendor, but if the inflation is hurting you, same is the case with your suppliers, its time to devise some innovative ways of cost savings or, in rare case, you may think of passing on the additional cost to the customer rather than your supplier.
Scope creeps, sometimes it crawls:
Its more in the case of service contracts, the product evolves, the team evolves, and the cost also needs to follow suit. The vendor always has some scope of adjustment, but the cost should not always be transferred to the vendor by forcing him to absorb additional effort. Sooner than later, you will notice the degradation in quality and unwillingness of vendor to offer best in class services to you.
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