Tips on dealing with business storms before they hit
As an example, in the case study described here, we investigated the specific product elements that had been given the ‘unnecessary bells and whistles’ categorization. What we found was that the end customers in this market didn’t see any advantages to these product elements. They didn’t help those businesses to gain more customers, to realize higher prices, or to reduce costs in other areas. So, these end customers made a solid sharp-pencil determinations that those product elements weren’t ones that they should pay for. Moving back one stage in the customer chain, it appears that the customer that ran the Internet auction heard this message, and incorporated similar thinking into their own decision processes. But the ingredient supplier failed to hear that message, and continued to engineer its products to include those ‘bells and whistles.’
Someone was wrong, as this inconsistency suggests. Either the ‘bells and whistles’ had value from a total cost of ownership perspective, and the ingredients supplier should have marshaled information and arguments to convince their direct customer and the end customer of that fact. Or the ‘bells and whistles’ were in fact unnecessary, without value in the total cost of ownership equation, and the ingredient supplier should have been as aggressive as was their direct customer in trying to ensure that they didn’t unnecessarily drive up costs.
A key lesson is that each participant in an important supplier-customer relationship, at every stage of the customer chain, should carefully examine the value contribution calculation being made by the other participants in the customer chain, and, when an inconsistency is observed, accept as an action plan the need to work through and create a fact-based resolution to that inconsistency. If there is any value to a solid relationship of the type that was described here between this supplier and their customer, it should have allowed for such a discussion to take place. And that statement isn’t based on concepts of kind treatment of long-term suppliers. It’s a statement that reflects the fact that both suppliers and customers should be intensely focused on what creates value in their relationship, especially in a relationship of significance.
There is a second example of an inconsistency in this case history. The ingredient supplier in question talked at great length about the contributions that they had made over the years to this customer through speeding product development processes, helping them to incorporate new technologies, and even to reduce costs by careful linkages in the manufacturing and distribution systems of the two companies. Some of these contributions were suggested in the quotes above. And, in other interviews that we did with the engineers in the customer’s organization, we heard very compelling statements about these contributions. Such factors clearly should enter into a calculation of value contributions, but in this instance, they were not given any material weight in the purchase decision that was made. That was, in fact, one of the reasons why the purchasing manager who we quoted earlier had “heard a real earful” from his own engineers, who in fact felt that their own organization had lost a supplier who had a history of making high-value strategic contributions.