Assessing the power relations with your suppliers is crucial as it can have a significant impact on your financial performance, supply chain management and overall success of your company. If a company has a strong bargaining position with its suppliers, it can negotiate better prices, terms, and quality for its inputs, which can translate into lower costs, higher profits and better products or services.
And indeed in procurement size does matter. Among the five groups of criteria identified by Kraljic, the size of the buyer is one of the most important. If you are a small company your volume of purchase is probably lower than that of your competitors and so is your price negotiation level. In this case, it might be considered that increasing and concentrating the volume of orders from a single supplier would increase price discounts, but, this would contradict another principle of diversifying one's supplier base to mitigate risk of supply chain. Relying heavily on one vendor can be dangerous as many experienced it during the Covid period.
So how can you regain power in your relationships with suppliers when your organisation is much smaller than theirs?
You may consider not working with only one single supplier but with a limited number of them in order to increase the volume of orders while maintaining a diversified supply base
Smaller companies can collaborate with other small companies to increase their collective bargaining power. For example, they can form purchasing cooperatives or join industry associations to negotiate better pricing and terms from suppliers.
Propose to the supplier to develop a joint product that will allow the latter to access a new market or increase its reputation. Indeed, as I keep saying, innovation is much more effective and rapid when it is managed through collaboration. This type of cooperation allows building strong relationships.
Smaller companies can leverage technology to streamline their procurement processes and reduce costs. For example, using e-procurement tools or online marketplaces can help smaller companies access a wider range of suppliers and compare prices more easily.
We @BearingPoint are experts in procurement approaches. If you have any hesitation or doubt about the buying strategy to implement, please contact me. I can advise you on the best approaches to take depending on your company's size and your business ambitions.