Supplier Supplier Relationships are Important Too

2 comments August 14th, 2007 David Bush - Iasta

The Supply Chain Management Review recently ran a great article on Supplier-Supplier Relationships: Why They Matter, excerpted on the SCMR site, that pointed out that it’s important to know the types of supplier-supplier relationships you are likely to encounter, since this can help you improve efficiency and drive down costs.

The article notes that there are three basic types of relationships your suppliers can have with each other: competitive, cooperative, and co-opetitive.

In a competitive relationship, which is often the most common, suppliers are primarily concerned with vying for the buying company’s limited spend for each buying category. The suppliers do their best to withhold information from each other and try to keep each other at bay. When suppliers are engaged in a competitive relationship, the buying company can readily maintain leverage over them by controlling the information given to each supplier and by taking advantage of the asymmetry between suppliers. The downside is that, if not careful, the buying company can miss out on potential synergies between suppliers and incur higher administrative costs.

In a cooperative relationship, suppliers work together toward a common goal, but information needs to be shared between the suppliers to the extent that it facilitates the common goal. In a cooperative relationship, the buying company may gain from the knowledge sharing between suppliers. However, in a cooperative relationship, there is always a chance for supplier collusion and the threat they could evolve to the point where they actually become competitive on the same level as the buyer.

In a co-opetitive relationship, suppliers compete and cooperate at the same time. They compete directly for self-preservation, but cooperate in a guarded way when there are mutual benefits. In this type of relationship, a buying company can gain the advantages of competitive and cooperative relationships. However, there will always be a certain level of uncertainty in this mixed relationship context, and one has to be guarded about the possibility of the relationship tipping one way or the other.

Entry Filed under: General, Suppliers