You probably never considered that your supplier could become your competitor, but it’s possible. Not easy, because getting a customer base, developing a marketing plan, and gaining a positive reputation take time and effort, but possible because your supplier has one definite advantage over you: he can sell directly to your customers at a cheaper rate than you can because he doesn’t need a markup to make a profit.
If you sell a product as well as its replacement parts and you get those replacement parts from a supplier, there is a chance that your supplier may become your competitor by selling these parts directly to your customers instead of to you. This cuts you off from aftermarket sales and, while you can continue selling your product, a lot of revenue will be lost from the declining sales of replacement parts.
This is very common in the aerospace industry, where airplane manufacturers sell airplanes as well as spare airplane parts to their airline customers. The suppliers who furnish the spare parts, however, may bypass the airplane manufacturers and sell the replacement parts directly to the airlines, essentially cutting out the middleman – the airplane manufacturer – and winning the sales because they can offer lower prices.
But what would cause a supplier to compete with you and risk losing your business altogether? One way, of course, is if your relationship with your supplier is strained. Suppliers are companies seeking to make profits too, and if your dealings with them are purely dictated by short term cost reduction and constant pressure to do so, the supplier may feel the need to look elsewhere for business – and that elsewhere may well be your customers.
To prevent this, avoid being adversarial with your suppliers and try sharing information with them instead. Having good communication can reduce uncertainties about lead times, product availability, and the like. In turn, if the supplier knows more about your business, there will be less uncertainty on their part about the consistency of your ordering. You and the supplier are essentially working together and you should think in terms of the types of incentives – like good communication – that will make you more attractive to suppliers, earning loyalty versus competitiveness.
Do you have questions about suppliers becoming competitors or maybe questions about inventory in general? Contact Acumen Information Systems today for more information.
