In the past few years, the procurement world has developed better ways to level the playing field between new suppliers and incumbent suppliers. Buyers have successfully driven costs down by embracing processes and technologies that increase competition between suppliers.  Generally this trend has made it easier for suppliers to get “introduced” to buyers. Supply relationship management technology has also increased the pressure for incumbent suppliers to maintain competitive pricing.

Clearly the risks associated with switching suppliers are commodity dependent. It’s a hybrid equation balancing the criticality of the product or service to your business against its own relative simplicity/complexity and the number and stability of the companies who can deliver it.

At the same time that companies have been increasing the pressure of competitive bidding, they have also begun using scorecards to measure supplier performance and supplier risk.

I think 2012 could be the “year of the incumbent” for 4 main reasons:

1. Since 2008, the supplier landscape in many industries has been dramatically changing. Companies have been going out of business, getting bought, and buying others out. While activities seem to have somewhat stabilized, I think there will generally be less churn in 2012 than in recent years.
2. Although I can’t say that gas, oil, and transportation costs will stabilize in 2012, I DO think that companies have become accustomed to factoring the variability of those costs into their supplier selection and product planning processes. Therefore, these costs should be less of a factor in supplier switching.
3. Companies who have been collecting and using supplier performance scorecards for a few years now have data with sufficient history to know how their incumbent suppliers are doing and should reward the ones that are performing well with additional business.
4. There’s been a lot of “talk” about partnering with suppliers, but the companies may finally have enough formal procurement processes and stable supplier data to cement those relationships with increased feedback loops and more transparency between buyers and their suppliers.

What do you think?

If you’re a buyer, do you feel a shift back towards your current supply base coming?

If you’re a supplier, do you feel an increased interest in supplier rewards and supplier loyalty on the part of your buyers?